Instalment loans refer to agreeing a specific amount that you will borrow from a lender, and you then pay this loan back (usually with interest) through a monthly repayment plan over a certain period of time. We take a look at the scenarios when opting for an instalment loan could be beneficial.
What types of instalment loans are there?
There isn’t just one type of instalment loan available on the market, in fact, there are several. The following examples are all types of instalment loans:
- Student loans
- Payday loans
- Personal loans
- Auto loans
- Motorcycle loans
- Credit builder loans
- Retail – including furniture, appliances, clothes and other white goods
Credit cards or other types of charge cards are not considered as instalment loans but as revolving credit. The reason why, is because the amount used is never predetermined by you and the lender when you first get the loan, meaning that monthly repayments will differ depending on the month in question.
If you can’t pay the money back in a lump sum
Instalment loans may be a far better option for you than a payday loan. Whilst the two often get confused as being one and the same thing they in fact aren’t. In summary:
- Payday loans usually require the customers to pay all the money loaned as a lump sum – often at the end of the month. A payday loan is typically used to make up for a small period in time when you are lacking cash during the month
- Instalment loans, as previously stated can be paid back over a series of months, which can prevent further cash flow problems. Whilst you could potentially end up paying more money back over this duration, the instalments paid monthly tend to be significantly smaller than if you had no choice but it back all at once.
It can help with unexpected events
If you find yourself suddenly having to deal with an emergency – such as your car breaking down, medical problems or a completely unexpected bill this can have a serious drain on your finances. Asking for an instalment loan can help alleviate some of the stress involved with these scenarios, helping you to pay the money owed in a safe and manageable way, by giving you a choice of time frames in order to be able to pay it back. For example, it could be weekly, fortnightly or monthly repayments that you choose to make.
If you need to loan a larger sum
As previously mentioned, mortgages and car loans tend to fall into the category of instalment loans, and the amounts loaned for this type of credit tends to be high.
How do repayments for instalment loans work?
If you decide to make an application for an instalment loan and it has been accepted by a provider, you will arrange with the lender a date that repayments are then collected on each month (or weekly, depending on the plan that you have arranged). For many, they will choose to decide to schedule the date on the day they receive their wages from work, as this is when they will be able to afford to pay the loan.
After the initial repayment, subsequent payments are then taken automatically on this date from your account. Depending on the company, you may need to organise setting up a direct debit in order to facilitate this. However, this does depend on the loan provider.
Most lenders we feature on all the lenders also offer a facility to repay your loan early, which can save you money or give a rebate of interest since your loan is open for less time.
What sort of interest rates are charged for instalment loans?
For most types of instalment loans, the repayments will usually incur a daily interest rate which in the payday industry is capped at 0.8% per day. The interest rate that you end up paying may depend upon a number of factors.
Lenders may take into account your income, whether or not your credit score is good or bad, as well as the amount you are intending to borrow in order to decide what the interest rate should be for the instalment loan you are taking out.
This means that the quicker that you pay back the loan, the less you will end up owing in total. So if it is possible, you should try to pay back the instalment loan as soon as you possibly can to cut down on repayment costs. However, it is important to reiterate that you need to be wise about your budget – pressuring yourself to make larger repayments at a much faster rate than you can physically achieve is only going to cause you more stress in the long run. Keep to a realistic repayment plan.
Things you should consider before getting an instalment loan
If you have decided that getting an instalment loan is the right decision for you, there are a number of different steps it is recommend you take before making an agreement with a lender.
First and foremost, research as much as possible before settling with a lender. You want to make sure you are not paying over the odds when it comes to interest rates and to get the very best deal you possibly can – that is why all the lenders is dedicated to price comparison of short term loans.
In addition, another thing you should make your top priority when it comes to instalment loans is checking if the company is registered with the Financial Conduct Authority (FCA).
To check if a lender is authorised or not is incredibly simple to do, by simply checking online on the FCA website and looking at their register. The site will also show any unauthorised lenders who have been reported for misconduct. Taking this step can save you a lot of hassle (and potentially, money too) in the long run, so don’t forget to do this.
If you remain unsure as to whether getting an instalment loan is right for you, it is definitely worth considering seeking free, impartial advice to discuss your options. You can contact by phone or email Citizens Advice Bureau, or the Money Advice Service, both of whom can help talk through your financial circumstances confidentially.