An instalment loan is a personal loan that you can repay over time according to a schedule of monthly payments as set by the lender and agreed by you. Any loan that you take out – if you are paying back in instalments – it will be termed as an instalment loan. Personal loans are the best example of instalment loans. Each payment that you make will include a portion of the principal amount that you have borrowed along with the interest rate. The interest rate that you will have to pay depends on the loan amount that you borrow, the loan duration, your credit score, your income and outgoings.
What are the advantages of an instalment loan?
Such loans have a flexible repayment period. You can choose the repayment period according to your budget and monthly income. Rather than paying back in a single shot, you can spread the cost of repayments over several months and years. This makes the loan that you have borrowed quite manageable.
When you apply for an instalment loan, a date is fixed by the lender. And every month, the amount gets deducted from your bank account on the same date. Lenders may provide you with different options for payment mode. If you are not satisfied with the auto-debit arrangement, you can ask your lender to provide you with an alternative, if available.
As the date of repayment is fixed, it becomes easy to stick to the budget that you have made. So, it can be concluded that with an instalment loan, you can easily manage your money.
How to qualify for an instalment loan?
Different lenders have different lending criteria. So, the eligibility criteria may also vary from lender to lender. When you sit down to apply for personal loans, check the lenders’ eligibility criteria and assess your financial circumstances. There are a few basic criteria that most of the lenders in the UK need you to qualify and we have listed them down:
- You must be a legal citizen of the UK.
- You must be above the age of 18.
- Must have a valid and active bank account.
- You must have a regular source of income.
These are some basic criteria that you should have. Apart from these, some lenders may consider your debt-to-income ratio to assess your creditworthiness and affordability. Also, lenders perform a credit check on your report to know about your relationship with credit.
What if you cannot repay an instalment loan?
If you fail to repay an instalment loan, your credit score will be impacted. With an unsecured personal loan, there is no risk to your asset as you do not pledge any while availing a loan. While with a secured loan, failure of repayment will lead to repossession of your collateral by the lender. They may sell it off to recover the amount you owe to them.
Moreover, your credit score will be ruined in both cases when you miss a series of repayments. The lender may go one step ahead and file a legal case on your name. You may receive a County Court Judgement (CCJ), which will stay on your report for 6 years if you do not repay the remaining amount within 30 days of receiving the notice.
How to know if an instalment loan is right for you?
Borrowing an instalment loan will impact your credit score and may also impact your monthly budget. Before you apply for a loan, assess your budget and ensure that you can easily afford the monthly repayments. What if there is an emergency? Will you be able to manage the repayments if you spend some extra money?
If you are not sure that you can afford the repayments, talk to the lender and check if they can revise your offer. Maybe the lender will offer you another repayment plan that has lower monthly repayments.
Another great alternative will be a credit card. Check for 0% APR credit cards. Mostly these cards have introductory offers that expire after a certain period. If you are considering using one, review the Terms & Conditions. These cards offer you a period where no interest rate will be levied on the expenses that you make using the card. However, after the introductory period is over, the regular interest rate will be applied. Hence, you must know the deal before you start using a 0% APR credit card.
If you have already decided that you need an instalment loan, compare various offers to find the best instalment loan in the UK. While comparing you may notice that different lenders will be offering you different interest rates. To find the one that falls in line with your requirement, compare all the available options. When you find a few favourable offers, check the FCA registration status of the lenders that you have shortlisted. If the lender who you have finalized is not licensed by the FCA, then beware as you may be trapped in a scam.