Many different types of loan come under the umbrella of “instalment loans.” In fact, most of the loans available to borrowers, whether on the high street or online, fall into this category.
What does instalment loan mean?
The basic definition of an instalment loan is lending that is repaid in instalments i.e. via regularly scheduled payments. There are many advantages to applying for an instalment loan and lots of different options if this is the lending that will work best for you.
What is instalment credit?
Any type of loan that is repaid in regularly scheduled amounts could be an instalment loan or instalment credit. This could include:
- Guarantor loans. If you’re borrowing with a guarantor to support your application the loan may be an instalment loan. This means that once your application is approved you will be responsible for making scheduled payments until the loan has been completely repaid. If you’re not able to make the repayments then, under the terms of the guarantor loan, your guarantor will be required to do this for you.
- Secured personal loans. A secured personal loan can also be instalment credit. The main feature of secured personal loans is that you can only apply for a loan if you have an asset that the borrowing can be secured against – this is often a property, for example. Repayments are made in regular instalments and the lender has the security of the property as a back up if something goes wrong.
- Unsecured personal loans. There are lots of options when it comes to unsecured borrowing and many of them are instalment loans. You don’t need an asset to borrow unsecured personal loans – your application is judged on a range of other factors, including your current credit history, your income, how much debt you already have and the size of the loan you want to borrow. An unsecured personal loan will be instalment credit if you’re making more than one repayment.
The advantages of monthly instalment loans
There are some attractive benefits to opting for monthly instalment loans, including:
- The option of lower repayments. If you choose monthly instalment loans over a longer period of time you can reduce what you pay each month
- Using monthly instalment loans to consolidate credit. Where you already have a lot of existing debt, a monthly instalment loan can be used to consolidate this so you only have one single repayment to worry about every month
- Great deals on interest and no fees. Many lenders who provide monthly instalment loans offer attractive deals on interest and no fees. You may need to shop around to find the best deals and this will also depend, to a certain extent, on your credit score
- Easy – and fast – application. Particularly if you’re making an application online, the process is usually simple and straightforward when it comes to monthly instalment loans. Applications are processed quickly and funds paid out sometimes within a matter of hours or days.
How are instalment loans calculated?
The lender will look at how much you want to borrow and how long you want to borrow it for. The amount you pay each month is calculated on the basis of the total amount divided by the number of months. Part of the process of calculating instalment loans will be factoring in the interest that you agree to pay on the loan for borrowing the money. You’ll be able to see the interest rate in your credit agreement. Many lenders add this to the total borrowing up front before calculating how much you’ll need to pay each month.
How do instalment loans work?
When you find an instalment loan that works for you, make an application to the lender. You may get the advertised rate or the lender may offer you a different rate. Advertised rates are usually available to borrowers with the best credit scores so it’s important to confirm you’re clear on the actual rate of interest before you sign anything. Once your application is approved the instalment loan is paid to you in one single amount. You’ll then start making repayments from the following month until everything owed, interest and capital, has been repaid to the lender.
What happens if you can’t pay an instalment loan?
Just like any other type of loan it’s important to ensure that you can afford to make repayments on your instalment loan. If you can’t then you may have to pay late fees or charges until you can. Lenders may take legal action against you if you’re not able to repay the loan at all.
Instalment loans are a great way to divide up borrowing so that you can make repayments in easy, affordable monthly amounts. There are different loan options and a range of lenders offering instalment loans for borrowers of all sorts.