Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
30th November 2020
3 minute read
Has your boiler blown, or maybe the winter weather has damaged a pipe or two?
If you’ve got an emergency situation that requires a financial fix, you might be exploring the option of taking out an instalment loan.
If you want to know more about what they are and how they work, read on to demystify the subject of instalment loans.want to know more about what they are and how they work, step inside and settle down. No longer shall the ins and outs of instalment loans be a mystery…
What is an Instalment Loan?
Any type of loan with more than one repayment is classed as an instalment loan. You may be looking for a short term personal loan, a mortgage, a secured loan, a loan for a holiday, debt consolidation, guarantor loans or even a business loan. As long as they are repaid in more than one payment, they’re all instalment loans.
Along with allowing longer periods of pay back which could be anything from a few months up to 30 or 40 years, depending on the type of loan, providers often offer the option to tailor the frequency of your payments. You could choose to pay weekly, fortnightly or four-weekly, rather than paying on the same day each calendar month. The idea is that you can spread out your payments so that you’re paying smaller amounts in line with when your salary or other income goes into your account. So budgeting should, in theory, be all plain sailing.
Instalment loans: a summary
- Short or long term lending
- Flexible pay back period
- Interest rates vary
When you take out an instalment loan you may have to grant your lender Continuous Payment Authority (CPA), so they can collect your payments direct from your bank account. However this means that they can take payments whenever they want and for different amounts, without consulting you beforehand. Many people choose to repay through direct debit instead, as it affords you more rights.
While this is convenient, as you don’t need to call up, go online or trek across town to make a payment, it can lead to problems if there aren’t enough funds in your account. You don’t want to clock up any bank charges or late payment fees, or to risk essentials like rent or mortgages going unpaid. If you choose an instalment loan you, therefore, need to manage your payments steadily.
Compare Instalment Loans
So, if you’re looking to compare the best instalment loans for you, or easy instalment loans with a payment schedule to suit, where should you start?
Firstly, take into consideration the reason for the loan and the amount you need to borrow. You’ll want to compare the rate of interest that lenders expect you to pay in return for borrowing. Unfortunately, it’s not a simple case of choosing the lowest one. There could be other fees involved such as late payment, over payment or even redemption fees if you choose to pay off the loan early. So along with comparing the total cost of an instalment loan, you should check out different features like fees too.
Interest Rates for Instalment Loans
When you’re comparing interest rates, don’t get too excited by the rate advertised. This headline rate is available to 51% of successful applicants. So if you are offered a loan, it may not be at this rate. The rates available to you will depend on your circumstances and your credit worthiness, so it’s always a good idea to take a peek at your credit file online.
If you’re smart, you won’t fire off lots of applications hoping to pick up the best rate, as that could affect your credit file. Instead, use tools like our free moneymatcher to search out loans that fit your requirements. We use a soft search that won’t harm your credit rating.
With an instalment loan you accrue interest on the amount you’ve borrowed on a daily basis, so the length of time you take to pay back the money is important. Ideally, you want to pay back the loan as soon as possible without causing yourself any further financial hardship, so it’s best to allow some wiggle room. A longer term means lower payments, but they’ll add up to mean you pay more back overall. It’s all about selecting something that’s manageable for you, while being mindful of the impact of the schedule you choose.
Is an Instalment Loan Right for Me?
An instalment loan isn’t always the answer but there are circumstances where it may be the right choice.
If you’d like to improve a poor or non-existent credit rating through careful management of borrowing, an instalment loan could help. Don’t forget you may have other options too, such as credit cards. Always remember that failing to make payments on an instalment loan on time could negatively impact your credit rating. This applies even if your lender doesn’t charge late fees.
Commitment to careful budgeting for those regular payments is key to making an instalment loan work. And if you can, paying your loan off early could significantly reduce the amount you pay back, if your lender doesn’t charge for early repayment. Could this type of lending be a winner for you?