A VIDEO GUIDE TO INSTALMENT LOANS | HOW PAYDAY LOANS & INSTALLMENT LOANS DIFFER


Hello and welcome to Solution Loans. This
short video covers a guide to instalment loans. Instalment loans offer more breathing space
than payday loans for those who need to borrow money quickly but want to be able to repay
it over more than a month. They are generally cheaper than payday
loans but the interest rates charged are still substantially higher than those offered with
more traditional forms of lending like unsecured loans and overdrafts. The Financial Conduct
Authority (FCA) has curbed the amount of interest that payday lenders are allowed to charge
and this is expected to lead to a dramatic fall in the number of such loans and, therefore,
a growth in the number of instalment loans. How do Instalment Loans work? While a payday
loan gives somebody the opportunity to borrow a small amount of cash with a single repayment
date the following month, an instalment loan spreads those repayments over several months
– typically between three and twelve. The amounts available to borrow typically range
from £100 to £2,000. As with more traditional forms of credit, instalment lenders will look
at your ability to repay, your credit history, income and other personal circumstances. These
checks tend to be a little more stringent than those that come with payday lending.
Why should I apply for an instalment loan? If you need to borrow a relatively small amount
(up to £2,000) but won’t be able to make a full repayment within 30 to 45 days, then
an instalment loan could be for you. It allows you to spread the repayments over several
months, giving you some breathing space to clear the loan or the means of plugging a financial
hole while you earn enough to repay it over a fixed period of time. The principal of an
instalment loan is similar to a traditional unsecured loan except that the timescales
for repayment are much shorter and the interest rates charged much higher. While unsecured
loans usually have repayment periods of between one and five years, instalment loans give
you up to twelve months to repay the advance plus interest charges. While the total amount
to repay is significantly higher than an unsecured loan, an instalment loan could suit you if
you only want to borrow a relatively small amount of money. And, as with other forms
of credit, the greater the amount that you borrow, the lower the interest that you’ll
be charged. So are there any downsides? The amount of interest you’ll be charged and, therefore,
the total cost of the loan will be substantially higher than with any other form of credit,
except payday loans themselves. Most instalment loan companies charge APRs of between 250% and 1,000% meaning that you could end up paying back double the
amount that you initially borrowed. You should also bear in mind that you will pay significantly
higher charges if you choose to stretch your repayment period. Borrowers who apply for
loans with repayment periods of a year will pay considerably more than those who take
out loans for three or six months. As with payday loans, you should be aware that applying
for an instalment loan could have an adverse effect on your credit rating and make other
lenders more reluctant to offer you credit. Even if you pay it back on time, some financial
institutions take a negative view of this form of lending and believe that it signals
a potential borrower has money problems. Many of the large mortgage companies won’t consider
lending to an applicant who has applied for a payday loan in the last six months and many
of them class instalment loans as another form of payday lending. The market
for instalment loans is relatively new but there are already a number of firms offering
this type of credit and therefore the interest charges vary considerably as do the repayment periods.
An instalment loan might suit you if you need to borrow a relatively small amount of cash
quickly, don’t want or haven’t got access to a traditional unsecured loan from a bank
or don’t want the pressure of having to repay your loan amount plus interest on your
next pay day. As with any other loan, the most sensible approach with instalment
loans is to plan ahead before you apply and give yourself a very realistic repayment schedule.

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