Broadly, an instalment loan is a personal loan that the majority of individuals borrow for a variety of reasons. As the name suggests, an instalment loan is repaid with fixed or variable monthly or weekly repayments. The amount that the borrower repays every month includes some portion of the principal amount along with the interest that is charged on the borrowed amount. The rate of interest that the lender generally charges on the loan depends on the applicant’s credit profile, their debt utilization ratio, the amount that the person is asking to borrow and the length of the loan. The term “instalment” only defines the nature of the repayment that is associated with the financial product. Every auto loan, mortgage loan, home improvement loan is an instalment loan – as it allows the debtor to repay the loan in instalments.
How Does an Instalment Loan Work?
You can apply for an instalment loan online by filling and submitting an application form that is available on the website of the lender or credit broker. The information that you have provided them will be verified and a credit check will be run on your profile to assess your creditworthiness. If your loan application is approved and you agree to all the Terms & Conditions of the lender, the money is transferred by the creditor to your bank account. You have to repay the amount including the interest charge to the lender as agreed by you at the time of signing on the contract.
For example, you wish to borrow £4,500 for 3 years at 16% APR, your monthly repayment will be £155.85. That means you have to pay £155.85 for 3 years to completely repay the loan. The total amount that will be payable by you will be £5,610.56.
5 Benefits of an Online Instalment Loan
Before borrowing the loan, you must know the benefits associated with it so that you can enjoy them. We have listed down 5 popular advantages of borrowing an instalment loan:
1. Predictable Monthly Instalments
It becomes quite easier for the debtor to plan their monthly budget as the repayment amount is fixed if they borrow a fixed interest rate instalment loan. While making the budget, they can take out this amount and put it in the debt repayment pot. Also, if they manage to plan and stick to the budget they have prepared, it will help them to build their financial future. As research conducted by the Money Advice Service shows that every 4 in 10 working-age people have less than £100 in savings.
- Builds Credit Score
Some lenders offer instalment loans for bad credit so that individuals who do not have a perfect credit history may get financial help. The loans they offer usually have a high rate of interest as they try to minimise the risk if the borrower defaults at the loan. Such lenders do not weigh your loan application solely on your credit score. They check your current affordability capacity to make their decision. If you keep paying the loan on time and in full as agreed in the contract, it will build and maintain your credit score.
- Handy for Emergencies
If you are stuck in an emergency and you have run out of credit card balance, then these loans come handy. As most of the lenders have come online with their businesses, it will not take much time to apply for an instalment loan. Once your loan application is approved by the lender, they will disburse the funds to your bank account. Some of the lenders also claim in their advertisements that they instantly transfer the money, they are called same day payout instalment loans.
- Use it for Any Personal Reason
Whether you have received a sudden tax return bill, or you need to pay for medical expenses in the middle of the month – you can use the money for anything you wish. Ensure that you are not spending the money on any illegal activity such as gambling, or do not invest it in the stock and share market. Know where you are using your money and spend carefully.
5. Quick Application Process
Lenders are evolving constantly keeping in mind the current borrowers’ demands and needs. Whether you are applying to direct lender for an instalment loan or you are doing it through a loan broker, the application process is simple and quite straightforward. All you have to do is fill in the form with accurate information and submit it online. Wait for a few minutes for the lenders to assess the applications from various angles, and you will get their decision. That means you do not have to wait for days or weeks to know the update on your loan application.
How Much Should you Borrow with an Instalment Loan?
Different lenders have different lending policies. They have different lending brackets according to which they offer the borrowers. The lenders associated with 786 Loans offer you to borrow:
- £100 – £1,000 if you are looking for a short-term instalment loan and it has to be repaid within 12 months.
- £1,000 – £35,000 if you are looking for a long-term instalment loan. The maximum repayment period for such loans is 7 years.
Now, coming to what amount should you borrow, it is a question that depends on several factors. Such as, the amount that you need, the APR that you are being offered on the loan, your monthly income and expenditures. Also, lenders decide the amount that you can take out the basis on your credit score. You must always borrow an amount that you can easily repay. Not paying back the loan on time will severely impact your credit score and will also interfere in your future when you consider borrowing money. If you have some savings, use that amount and if you still fall short of funds, you can take that balance amount with an instalment loan.
To start your application for an instalment loan, click here.