Instalment loans have become increasingly popular over recent years as people have opted to spread their repayments over several months in order to ease the impact of their financial responsibilities. It’s the same reason that buy now pay later schemes are so popular – because it is generally easier to control your cashflow when your repayments are smaller, even if that means paying over a longer period. However, while there are several benefits of instalment loans, you should still consider the pros and cons of this type of borrowing before you apply for short term credit. While you may immediately assume that smaller repayments are better, spreading them over a longer period will cost you more in interest and could cause financial difficulty further down the line, if something else were to go wrong.

What is an instalment loan?

An instalment loan is a type of high cost short term credit. This means you can borrow a small loan for up to 12 months. Most instalment loan lenders provide their service online so that you can apply any time of the day, and any day of the week. This makes them accessible and a quick solution if you have an urgent expense. You may have searched for long term loans online before, as an alternative to payday loans. Although instalment loans have a longer loan term than payday loans, they are still classified as short term credit.

How does an instalment loan compare to a payday loan?

  • You can apply for both online, typically 24 hours a day, 7 days a week
  • Most lenders use automated algorithms, so you get the loan decision the same day
  • The funds are transferred directly into your bank account shortly after approval
  • Payday loans have one single repayment date, typically on your next payday
  • Instalment loans have up to 12 repayment dates, though it’s common to borrow for between 3 and 6 months

Pros and Cons of Instalment Loans

Instalment loans are easy and quick to apply for, and they have higher acceptance rates for people with a thin or poor credit history than mainstream borrowing options. This makes instalment loans an accessible form of credit, even if your past history with credit hasn’t been great. As credit file records remain for six years, your financial circumstances now could be much different to a few years ago, but you could still find it hard to be approved for credit. In times when cashflow is tight or you experience an unexpected expense, it can be comforting to know you have options to help you manage your money.

However, while instalment loans can help you navigate short term cashflow issues, they are by no means a secondary source of income or a way to repay other borrowing. Instalment loans, as high cost credit, have high interest rates which mean they aren’t the cheapest way to borrow. Using this type of credit unnecessarily, or when you knowingly can’t afford the repayments could cause increased financial difficulty and make credit harder to obtain in the future. While it can seem like a good idea in the immediate aftermath of an unexpected bill or emergency payment demand, you need to take the time to consider your finances in full before applying for credit. There are other routes you can take if you are worried about your finances, such as speaking to an independent debt advice charity.

Things to Consider before Borrowing

Borrowing money can be a decision you make to benefit your finances, for example if you get cashback rewards on credit card spending. On the other hand, borrowing might be a last-resort option when cashflow halts and you need money to meet your essential expenditure. In this case, it can be tricky to know where to apply for small loans that will meet your needs and offer a quick resolution. While instalment loans have their benefits and are quickly accessible, all borrowing needs to be considered – especially if you have few other options. Borrowing now could solve your issue in the short term but could create longer-lasting financial difficulty if you struggle to meet the repayments on time. Always consider your future finances as well as your current commitments when applying for any type of credit.