Unsafe Harbor: The Persistent Harms of High-Cost Installment Loans

Center for Responsible Lending |

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Over the past decade, the high-cost small-dollar loan market, once dominated by short-term balloon payment payday loans, has seen the rise of high-cost installment loans with longer terms. Payday loans are typically repaid in a lump-sum, usually due in 14-day periods. Installment loans tend to be larger in size and repaid in several installments, typically over a period of several months.

Although they are repaid in installment terms, these loans share similar characteristics with other payday and car-title loans: a lack of underwriting; access to a borrower’s bank account or car as security; structures that make it difficult for borrowers to make progress repaying; excessive rates and fees; and a tendency toward loan-flipping or stressed re-borrowing. Many of these loans are problematic even without repeated re-borrowing. The fundamental harm is that these lenders make loans that borrowers cannot afford to repay, regardless of whether the loan is structured as an installment or balloon payment loan.


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