There will always be times in life when you need to borrow money. Sometimes, it might just mean borrowing from your savings, sometimes it means dipping into an arranged overdraft. Other times, unexpected expenses or emergency bills might require you to take out a new line of credit. However, choosing a borrowing method that helps you isn’t always straightforward as there are so many options available it can be hard to know which type of credit will help your finances in the best way.

What is an instalment loan?

An instalment loan is a type of short term credit that is designed to help you manage unexpected cashflow shocks so you can keep your finances on track between paydays. Instalment loans evolved because many people prefer to spread the cost of their loan repayments over several months, making it more manageable to repay the credit, especially if you’re on a low income. The total amount repayable is likely to be higher than a 1 month payday loan because you are borrowing for a longer period, but it’s important to make sure the repayments for any form of credit are affordable.

Although instalment loans are considered short term credit, some people may think of them as having long loan terms as you can borrow for up to a year, compared to payday loans which you can borrow for up to a month. You can search for long term loans online and you will most likely find an array of instalment loans and payday loans provided by online lenders.

Are online loans helpful?

There are lots of factors that may influence your decision about which service to use and which lender to borrow from. Lenders offer online loans or credit services, so you can access the application form pretty much 24/7. Some lenders can even process and transfer funds within an hour, so you’re not left financially stranded for long when something unexpected comes up. Online services can be preferable because of their accessibility and ease. Most instalment loans are offered online, but other types of credit like a mortgage are likely to require in-person visits. If your loan is offered online, it’s likely your account management is also online so you won’t need to call the creditor to make payments, for example, which can save you time and hassle over the term of your borrowing.

How does an instalment loan help?

Depending on the reason you need to borrow, instalment loans can be very helpful or completely impractical. If you want to renovate your kitchen, for example, an instalment loan is unlikely to be able to help because you can generally only borrow up to £1000 which is seldom sufficient for renovation works. However, if your reason to borrow is on a smaller scale, or is an emergency and you need funds quickly, instalment loans might be a good potential option. Some examples of when an instalment loan might help include:

  • If your washing machine has broken, and the repairs cost too much to come out of one pay-check
  • If you’ve budgeted for your yearly MOT, but your car requires a new alternator, and the unexpected bill will leave you unable to meet your normal financial responsibilities this month
  • If you’ve just had to spend your emergency saving fund, and then another surprise expense comes up before you’ve had a chance to rebuild it

Can an instalment loan help if I have bad credit?

Having a bad credit history can make it feel nearly impossible to find credit when you need it most. Instalment loan lenders are aware that your credit history is a record of your past financial management, and your circumstances now might reflect an entirely different situation. While you aren’t guaranteed approval for an instalment loan if you have a low credit score, one of the benefits of instalment loans is that you are more likely to be accepted for this kind of credit than for mainstream credit offered by banks.

Before you borrow an instalment loan

An instalment loan can help you quickly resolve cashflow issues and spread the financial impact of unexpected payments over several months, so you can continue to meet your regular financial commitments with little concern. However, before you decide to apply for an instalment loan, you need to make sure you’d be borrowing responsibly.

You can’t always guarantee your future circumstances, but by checking your existing financial responsibilities and any planned upcoming expenses, you should be able to make a reasonable decision as to your ability to make the repayments on time. You may need to set reminders or write notes in your calendar to remind you when the repayments are due (though most lenders will also send electronic reminders), or you may just need to add the temporary additional expenditure into your monthly budget, so you don’t overspend on non-essentials.

While instalment loans are accessible, they are designed to help you, not to worsen your financial circumstances. If you’re already concerned about money and meeting your essential expenditure on time, taking on additional responsibilities in the form of loan repayments may not be the most sensible way forward. You can always seek help from free debt advice charities before applying for credit if you’re not sure.