Loans with low monthly payments help applicants with bad credit history improve their odds of an approval.

Online lenders evaluate credit scores and the projected debt-to-income (DTI) ratio. You calculate the DTI by dividing monthly income by the projected monthly payments.

A loan with low monthly payments helps the DTI ratio.

Small principal amounts, longer terms, and better interest rates help applicants with bad credit obtain loans with low monthly payments by improving DTI.

  • Personal loans are unsecured and require better qualifications
  • Installment loans are secured by the pledged collateral

Personal Loans with Low Monthly Payments

Bad credit personal loans with low monthly payments help the applicant project a better debt-to-income (DTI) ratio. With a personal loan, you do not pledge any asset that the lender can repossess in the event of default. The industry also uses terms such as “signature loans” and “unsecured loans” to describe this contract type.

An unsecured personal loan presents more risk to the online lender because they cannot repossess collateral. Therefore, expect to face higher interest rates and qualifying criteria that are more stringent. Choose between smaller principal amounts and longer terms to improve DTI ratios.

Small Loans

Request a small personal loan, which by definition has low monthly payments. The beginning principal is the sum of money you borrow from the lender. Applicants with bad credit history stand the best chance for an online approval by requesting lesser sums.

The reverse is also true. Big loans do not have low monthly payments. The larger the sum that you borrow from a bank, the more you must return each period.

The math is very basic and stands up to simple logic. Follow this example of a one-year contract, illustrating how small principal amounts determine the periodic obligation.

Loan SizePrincipal Paid
$1,000$83
$2,000$166
$5,000$415
$10,000$830

Long-Term Loans

Long-term personal loans have low monthly payments. The longer the time you keep the money you borrow, the lesser the amount you must return each period. However, this approach costs more over time.

The reverse is also true. Short-term loans do not have low monthly payments. The less time you take to square up with the lender, the more you must return each period. However, this approach costs less over time.

Applicants with bad credit history can utilize longer terms to keep the DTI within target ranges.

Principal Only

The math is very basic. Consider the principal only periodic obligation for someone borrowing $5,000, when spread over five different term lengths.

TermPrincipalTotal
12$415$5,000
24$208$5,000
36$139$5,000
48$104$5,000

Interest Only

However, long-term personal loans also charge more interest over time. Notice how the total charges for the same original amount ($5,000) accumulate for a 15% annual percentage rate (APR).

TermInterestTotal
12$35$416
24$35$818
36$35$1,240
48$35$1,679

Low-Interest Loans

Low-interest personal loans have low monthly payments – holding the amount and term constant. Lenders charge interest to compensate for the time value of money and the potential default risk. Default means that the company never receives full reimbursement, and loses significant sums of money.

First-time borrowers and people with poor credit qualifications have a much higher default risk.

Therefore, expect to incur a higher interest rate. Notice how the annual percentage rate (APR) affects the size of the periodic obligation for a $5,000 principal amount with a 36-month term.

APRInterest Only
10%$23
15%$35
20%$47
25%$60

Installment Loans with Low Monthly Payments

Bad credit installment loans with low monthly payments also help applicants project a better debt-to-income (DTI) ratio. With this contract type, you return money to the bank in equal installments at fixed intervals (monthly). Borrowers frequently pledge collateral such as an automobile, house, vehicle title, or an upcoming paycheck.

A secured installment loan presents less risk to the online lender because they can repossess the collateral in the event of default. Therefore, expect to find slightly better interest rates and qualifying criteria that are looser. However, you still must choose between smaller principal amounts and longer terms to keep DTI within acceptable ranges.

Payday Cash Loans

Avoid any online lender offering payday installment loans with low monthly payments. People with bad credit can get a fast decision that could worsen a bad situation very quickly. Two of the three main components spell trouble for cash advances.

  1. Payday loans always come in small amounts. Most online lenders will limit what you can borrow to under $1,000.
  2. Payday loans are not long-term. You secure the original principal with your next paycheck. You owe the entire obligation in a single installment. Most employers cut payroll weekly, or bi-weekly.
  3. Payday loans have extremely high-interest rates. Online lenders charge origination fees, which add up very quickly each time that you renew the contract – which often happens weekly or bi-weekly.

Car Loans

Car installment loans with low monthly payments for drivers with bad credit combine an affordable sticker price, longer terms, and better interest rates. Leasing rather than buying is another alternative.

  1. Apply for Auto loans with small principal amounts. This means making a responsible vehicle choice. Pick the economy model or a reliable used car.
  2. Choose long-term auto loans. If you spread the installments over 5 years instead of 4 years, the total you owe each period will be smaller. Of course, this option costs more over time.
  3. Auto loans have decent interest rates because you pledge the car as collateral – which decreases in value as you drive it. However, drivers with poor credit scores do not get the best rates.

Auto leases often have the lowest monthly payments – although this is the most expensive option in the long-term. You must return the car at the end of the lease term, and could incur extra fees if you exceed the mileage limits.

Title Loans

Car title installment loans with low monthly payments for drivers with bad credit follow the same pattern. You must own the automobile free and clear, and have physical possession of the printed title. The lender can take possession of the title if you default, as you pledge your vehicle as collateral.

  1. Apply for title loans with small principal amounts. You can borrow only up to the wholesale value of your used automobile. This limits the original principal.
  2. Title loans can have moderate term lengths. Many finance companies will allow qualified borrowers to spread disbursements over four years or less.
  3. Title loans can offer above average interest rates, as used cars are difficult to appraise in value. You secure the contract with the vehicle title, which is better than a promise to pay based only on a signature.

Home Loans

Home installment loans with low monthly payments for buyers with bad credit also combine an affordably priced house, a longer term, and lower interest rates.

  1. Apply for a mortgage with a small original principal. Choose a house in the right price range given your monthly income. Put more money down.
  2. Select a long-term mortgage. You owe less money each month as the term increases from 15, to 20, to 30, 40, or even up to 50 years. Expect to pay a higher APR and incur greater accumulated charges if you opt for the longest term.
  3. Mortgages have the lowest interest rates because the home acts as collateral and tends to increase in value as you live there. Of course, buyers with poor credit scores rarely pay the best rates.

Mortgage companies follow strict DTI guidelines in order to conform to standards.

  • 31% Front-end DTI includes the monthly payment for principal, interest, real estate taxes, and homeowner’s insurance premiums.
  • 43% Back-end DTI combines the front-end numbers with your monthly payments for student loans, car notes, credit cards, and other regular obligations lasting 10 months or more.