Money is an integral part of our everyday lives and imagining a life without money is simply impossible. Even the smallest of need requires money to be fulfilled. Borrowing a loan becomes an utmost necessity when we are running short of finances. With multiple borrowing options, it has become easier to choose a product keeping in mind your own financial necessities and affordability. Instalment Loans are gaining popularity in the United Kingdom due to the flexibility in the repayment period. However, you must consider the potential risks of borrowing an instalment loan.
Key takeaways of this article:
- What is an instalment loan?
- 3 associated risks of the loan
What is an instalment loan?
An instalment loan is a kind of personal loan that can be taken out without offering any security. Mostly, there are two types of instalment loans:
- Long-term instalment loan
- Short-term instalment loan
With a long-term instalment loan, the money taken by you has to be repaid within a period of one to seven years. While, with a short-term instalment loan, it has to be repaid within three to twelve months. The cost of repayment is spread over several months and that allows a borrower a financial breathing space.
3 associated risks of an instalment loan
Though Instalment Loans are available online, there are still a few financial risks associated with it. 3 major risks are listed below:
- High rate of interest
Generally, the rate of interest charged on these unsecured loans is high as compared to secured loans. Carefully compare the loans by taking into consideration the APRs offered by the lender to know the overall cost of the loan.
- Credit score
If you do not make the repayments on time and in full, your credit score will be damaged. And as no security is tied to the loan, the lender may take legal action against you. And if a County Court Judgement (CCJ) is issued, it becomes difficult to find a lender who will agree to lend you money.
- Early payoff penalty
Some lenders charge a penalty if you pay off the loan earlier than the agreed end date. Read the fine print to know the Terms & Conditions of the loan you are offered and act accordingly.
Alternatives to an Instalment Loan
If you do not feel like opting for an instalment loan – that’s completely fine. There is a multitude of borrowing options available and you can choose anyone among them to resolve your financial necessities. Listed below are a few alternatives:
- Credit cards
- Credit unions
- Ask your employer for a payday advance
- Borrow from your friends and family
- Use your emergency fund
- Bank overdrafts
You can choose a 12 Month Loan if you need the money for a year. The repayment has to be done in fixed monthly instalments. With an instalment loan, it becomes easier to budget and plan as the monthly repayment amount is predictable and fixed. Also, you do not have to worry to arrange a co-signor who will act as a guarantor while you apply for a loan.
To apply for an instalment loan with us, click here.