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Instalment Loans

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I would like to borrow...

...and pay it back in 12 months

Representative Example: Amount of credit: £1,000 for 12 months at £107.53 per month. Total amount repayable of £1,290.36. Interest: £290.36. Interest rate: 49.9% p.a. Fixed*. 49.9% APR Representative. Rates between 9.9% APR and 1,295% APR.

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What are Instalment Loans?

Instalment loans are loans that allow individuals to borrow cash that they will repay in fixed amounts over a specific period of time. Usually, the loan has two or more payments, and the repayment period can be as little as three months or as long as three years.

Instalment loans allow a person to borrow a lump sum of money, which will be paid according to the terms of the lender. Although most loans have a fixed interest rate, some have adjustable interest rates. Thus, the amount of interest paid will change over the loan term. Some instalment loans are secured by collateral while others are not (unsecured loans). The collateral is used to guarantee that the borrower will repay the loan. In case the borrower defaults on the loan, the lender will take ownership of the collateral.

How Do You Apply for Instalment Loans and How Does It Work?

The procedure of obtaining an instalment loan and paying it back varies from one lender to another. It is recommended to understand the terms of the agreement before taking out the loan. When you apply for an instalment loan, you first fill out a form with all your details, including the purpose of the loan. The lender then discusses with you further details such as payment amount, terms and payment schedule.

During your application, most lenders will carry out a credit check on you to determine your loan eligibility. Proof of your income and bank account information - to see if the deposits are made to you by your employer - may be requested by some lenders.

After your loan has been approved and money has been sent to you, you will be expected to repay it using monthly payments. Other than interest fees, the payment will also include a loan origination fee, processing fee and any late payment fees.

How to Qualify for An Instalment Loan

Like any other loan, the borrower will have to meet several requirements. With a higher credit score, for instance, you are likely to get lower interest rates on loan. You will need to have a fairly low debt to income (DTI) ratio. This ratio represents your debt payments and monthly expenses to your monthly income. Lenders perceive those with low DTI ratios as lower credit risk. The borrower should also have a stable and dependable source of income. Lastly, some loans will be secured using collateral such as home or automobile.

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Examples of Instalment Loans

The most common types of instalment loans are personal loans, auto loans and mortgage loans.

Mortgage Loans

The most common loan terms are between 15 and 30 years, although the terms will vary among lenders. The loan will have a fixed interest rate, but some lenders will offer a variable interest rate. The variable rates are usually adjusted according to the variations in market interest rates. A borrower can secure this type of a loan by using his home so that in case of a default, the creditor will repossess the home.

Personal Loans

A borrower can use a personal loan to cover unexpected bills such as home repairs or medical expenses. The loan term may vary from 12- 96 months or more. Most of these loans do not require any collateral, and they have higher interest rates compared to other loans.

Auto Loans

The ordinary loan term is between three to four years, but some lenders offer a longer-term for borrowers buying expensive car models. You can get auto loans from online lenders, credit unions, banks or in some dealerships. When taking out auto loans, make sure you carry out your research to get the best deals.

Benefits of Instalment Loans

1. Fixed payments.

A borrower will not need to worry about increasing rates when the loan has fixed interest rates. There will be no sudden jump in the APR. This allows for better financial management and planning.

2. Small instalment loans are easier to manage.

Breaking down a lump sum into manageable instalments lets you make payments without hurting your pocket.

Drawbacks of Instalment Loans

1. Unflexible terms

Instalment loan terms are negotiated before closing the deal, and the borrower must adhere to them. The borrower cannot renegotiate the terms even if the circumstances change. The payments, interest rate, term and schedule will remain constant unless the borrower wants to default on the loan. Since many of these loans are secured by collateral, the creditor is likely to repossess the asset in case of a default.

2. Variable vs fixed interest rate

Most instalment loans will have a fixed interest rate. The fixed-rate will not respond to the market rates. Thus, it can remain high even when the market rates are low. This will force the borrower to pay high-interest rates even when there could be an option for lower rates.

 

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Instalment Loans FAQ’s

Can I apply for instalment loans online?

Yes. Most lenders have online application platforms. You can check the eligibility requirements of the lender before applying for an instalment loan.

Can I get an instalment loan with bad credit?

Sure! Having a good credit score is an advantage in securing any loan, but not all borrowers have a perfect score. Some lenders will overlook your credit score and check for affordability instead. They will ask you to provide proof of a stable income before issuing you the loan.

Can I repay the loan early, and how will that affect my credit?

Of course. You may pay the loan in full early, but you must first contact your creditor. Some lenders may charge early repayment fees, so make sure you are aware before taking out a loan.

Paying off your loan in full will be beneficial to you because you will be debt-free, and you will save more money. But, it may not necessarily help your credit score. Unlike paying off the loan in full, making consistent monthly payments will keep your account open and active. This will show that you can manage your credit, which will give you a good credit score.

Final Thoughts...

Before taking out an instalment loan, be sure to first understand the lender’s terms and conditions. By understanding the offer, you can shop around for a better deal that will suit your circumstances. Additionally, if you are not sure about the right option, you can reach out to instalment loan lenders for advice.

Looking for an instalment loan?

We can connect you to a lender in minutes, even if you have bad credit.

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