The installment loan application process can seem extremely daunting the first time you apply.

There’s jargon to learn, endless fine print, and that feeling that you’re probably forgetting something important. Sound about right?

Simplifying things is easier than it looks…

Learning loan terms and the application process doesn’t have to be difficult. Armed with the proper knowledge, every first-time borrower has the ability to go into the process feeling confident — and come out with a loan that makes sense for them.

Here’s what’s covered:

1. What Are Installment Loans?
2. Important Loan Terms Every Borrower Should Know
3. How The Installment Loan Application Process Works
4. What Lenders Look For
5. Mistakes First-Time Borrowers Make

What Are Installment Loans?

Installment loans are one of the most common types of loans around today. Borrowers are given a lump sum of money which they repay over time in fixed monthly payments.

It’s simple.

That’s why so many people opt for them. Installment loans aren’t open-ended like credit cards. They have a set beginning and end date. Plus, payments are predictable every month. You’ll never get any surprises with an installment loan.

Installment loan examples include:

• Personal loans
• Auto loans
• Mortgages
• Small cash loans

For beginners just learning about installment loans, a $200 installment loan is a great place to start. They can easily learn how to enter the installment loan application process, borrow a small amount of money, repay it, and learn from their experience without breaking the bank.

Important Loan Terms Every Borrower Should Know

Before jumping into how the installment loan application process works, here are the terms that lenders will be throwing at you.

Principal

Your principal is the amount of money you borrow. If you take out a loan for $500, your principal will be $500. Interest is then charged on top of your principal — not vice versa.

Interest Rate vs. APR

This is where most first-time borrowers get tripped up.

Your interest rate is how much it costs you to borrow the money. The APR, however, is your interest rate plus any fees or additional costs. When comparing loans, the APR is the number you should be focusing on.

FYI: Right now, the average personal loan interest rate is hovering around 12.15% with lenders ranging anywhere from 6.24% to 35.99%. That’s a large range. See why reading the fine print is so important?

Loan Term

Your loan term is the length of time you have to repay the loan. Longer loan terms equal lower monthly payments. But you pay more interest over time. Shorter loan terms mean larger payments but less interest. Loan terms don’t matter if they don’t fit your budget.

Monthly Payment

Monthly payments are, well, the amount you pay each month. Part of that payment goes to your principal, and part goes to interest. Your lender will calculate this amount based on your loan amount, interest rate, and loan term.

Origination Fee

An origination fee is a fee some lenders charge in order to process your loan. This is typically a percentage of the loan amount that is deducted from your funds before they’re disbursed to you. Always take this into consideration when calculating how much money you’ll actually receive.

Prepayment Penalty

Loan prepayment penalties are charged to borrowers who pay off their loan early. Not all lenders charge these, but it’s always good to double check before you sign any paperwork.

How The Installment Loan Application Process Works

Here’s the part most people are worried about: the actual application process.

The truth is… it’s not bad. Once you know what steps to expect, the installment loan application process is simple.

Step 1: Check Your Credit

Check your credit score before you apply anywhere. Lots of websites allow borrowers to check their credit scores for free. Your credit score will determine what interest rate you’re eligible for — and whether you’ll even be approved by certain lenders.

Step 2: Shop Around

Don’t just apply with the first lender you find. Do your research and compare at least three to five lenders. Look for:

• APR ranges
• Loan amount options
• Repayment terms
• Fees
• Customer reviews

Step 3: Pre-Qualify

Many reputable lenders will offer pre-qualification. This is a soft credit check that doesn’t affect your credit score. Instead, they provide you with estimated rates and terms. Borrowers should pre-qualify with multiple lenders to determine who is their best option.

Step 4: Apply

Once a lender has been decided on, it’s time to fill out the application. You’ll be asked:

• Full legal name and address
• Employment and income details
• Social Security Number
• Bank account information

Triple check that everything is correct. Applications with errors can take longer to process — or even be denied outright.

Step 5: Review Your Loan Offer

If your application is approved, you’ll be sent a loan offer. Read every detail of this document before agreeing to anything. Pay special attention to the APR, repayment terms, monthly payment amount, and any fees buried in the fine print.

Step 6: Accept And Receive Your Funds

Accept the loan offer, and money is typically deposited into your bank account. Some lenders can even do this immediately. Most will take anywhere from a few hours to a few business days.

What Lenders Look For

Every lender evaluates something slightly different during the installment loan application process. But there are a couple of universal things they look for when underwriting loans.

Prospective lenders look at:

• Credit score: Obvious stuff. The better your credit score, the better interest rates you’ll qualify for.
• Income: Lenders need to feel confident you can make your monthly payments. Provide proof of steady income.
• Debt-to-income ratio: This is the ratio of your monthly debt payments compared to your monthly income. The lower this number is the better.
• Employment history: Like debt-to-income ratio, steady employment demonstrates responsibility to lenders.

One survey conducted by Self Financial revealed that 79.6% of personal loan borrowers say that using a personal loan made their financial situation better. Loans really can work in your favour if you know what you’re doing.

Mistakes First-Time Borrowers Make

Avoiding these mistakes is easy once you know about them.

Borrowing more than you need. Because lenders will offer you more money than you might think you need, it’s easy to borrow more than you want. Only borrow what you need and what you know you can repay.

Not understanding the APR. Lower monthly payments are great. But what about the total cost of the loan? Always calculate what your loan will cost over its full term.

Not reading the fine print. Fees, penalties, terms… they can all change the quality of your loan. Read your loan agreement in full before signing on the dotted line.

Only applying to a single lender. Shop around! Did you know that just improving your APR by 1% could save you $36.95 on a $1,000 loan? Seek out multiple lenders to find the best option for you.

Missing payments. Set up autopay. One late payment can negatively affect your credit score and result in late fees. Paying your loan payments on time is crucial to using loans responsibly.

Tying It All Together

Apply for your first loan with confidence. The installment loan application process is less daunting when you know what you’re doing. Remember:

1. Know the important loan terms up front
2. Follow each step in the application process
3. Understand what lenders look for
4. Don’t make any rookie mistakes

Taking your time to learn how to apply for a loan properly sets you up for financial success down the road. Every smart borrowing decision you make after your first loan becomes that much easier.

Last modified: February 25, 2026