Instalment loans – how do they work?
The instalment loan lenders we feature in the UK allow you to borrow up to £2,000 online and repay over 3,6 or 12 months. An instalment loan is different to a payday loan which usually lasts between 15 and 45 days and you clear your account in one lump sum at the end of the month, usually your payday. The way an instalment loan works is that you are able to split repayments over a period of time making it more flexible.
How are instalment loans repaid?
Depending on the lender, some instalment loans are repaid in equal monthly instalments whereas some lenders ask customers to pay a different amount for each instalment. In this case, the first instalment is typically the most expensive and then the cost of remaining instalments decreases over time. Initially, you will be paying off the capital of your loan and by the end you will just be paying the interest.
The payments are always collected automatically from the customer’s bank account via a process known as Continuous Payment Authority. Repayments are usually made on the customer’s pay date because this is when they get paid from their employer and are most likely to have funds available in their account.
Missing repayments can incur a default charge of £15 per missed instalment. Lenders may also charge daily interest of up to 0.8% for every day that a payment is overdue. For this reason, it is always important to clear your debts on the dates specified and you must contact the lender in advance if you are unable to do so. You can read more here about the implications of non-repayment.
Why are instalment loans so popular?
More and more consumers in the UK are choosing instalment loans over traditional payday loans. For many, the ability to stagger repayments over time is a more flexible option. Payday loans can sometimes put a strain on one’s finances if they need to be repaid in one lump sum at the end of the month.
Instalment loans for emergencies are popular because if you need to borrow around £1,000 for a broken boiler, medical bill or car repair, you may not be able to repay the full loan amount and interest in just a few weeks. Therefore, being able to repay in smaller amounts over a number of months is a much more sensible way to manage your finances.
Another benefit is that you have a long time before repaying the loan in full. So if you are looking forward to receiving a salary increase or a bonus at work, its nice to know that you will have some disposable funds in order to pay off the loan over time. Best of all, most lenders allow you to repay early and since you are charged on a daily interest rate, you can save a lot of money by doing so.
Types of instalment loans
Traditional payday lenders have slowly started to increase their product offering and this includes 3, 6 and 12 month loans.
3 month instalment loans
A 3 month instalment loan is the closest thing to a payday loan alternative. Instead of repaying the entire loan and interest back on your next pay date, you are able to split repayments into 3 months and this is usually in 3 monthly instalments. If you are able to repay the loan early, you may find that the cost of the loan is quite similar to that of a payday loan.
6 month instalment loans
A 6 month instalment loan is ideal for more expensive purchases or payments. Being able to spread the cost of the loan over 6 months gives you the flexibility so you can earn some income and get back on your feet. Some lenders will charge 6 month loans in equal monthly instalments whilst others make the first instalment the most and then each monthly payment decreases accordingly.
12 month instalment loans
Also known as a one year loan, 12 month instalment loans are usually repaid in 12 equal payments. Since the loan lasts for one year, you may be able to borrow more than with other similar loans. This type of loan certainly gives you a good amount of time to get your finances on track and you always have the option to pay early and save money if you have the funds available.
Instalment loans for bad credit
For those individuals looking for loans with bad credit, all instalment lenders carry out credit checks when assessing your loan. This is a fundamental check to ensure that you are eligible for a loan. A credit check allows the lender to see if you have any other loans open and whether your credit history suggests that you will be able to keep up with repayments.
If you have bad credit, you may be more interested in a guarantor loan which can also be repaid in instalments. This type of loan is better suited to those with bad credit because you include another person in the transaction who has good credit and can agree to the cover the cost of your loan if you cannot repay.
Review Instalment loan lenders with Quiddi Compare
Our comparison table features a combination of one month and instalment loan lenders so you have the best choice possible. You need to think about how you will repay your loan because failing to repay on time can increase the cost. So we are pleased to give you a variety of loan options available, comparing the length, amount and APR of the loan.
To proceed, simply click on the lender which is best suited to your requirements and click on ‘visit website.’ Then, you will be taken directly to the lender’s site where you can apply. You will be asked to fill in a few details and subject to a few credit and affordability checks, you should be able to receive funds on the same day. Quiddi does not charge you a fee for using our comparison table and we will not take down or share your details with any other companies.