Instalment loans are a super handy way to borrow money upfront for major costs. But then pay it back over time in shorter, more manageable instalments. It’s the best of both worlds – access to funds when needed while avoiding one huge, terrifying bill!
Instalment loans have fixed repayment schedules that prevent balances from spiralling. You know exactly what you’ll owe each month and the luz at the end of the tunnel.
The loan term length depends on how much you’re borrowing but generally ranges from 6 months on the shorter end to up to 7 years for larger amounts.
For example, Finder found “the average 10,000 pounds personal loan repayment is around 3 years” in the UK.
Understanding Instalment Loans
Common types of instalment loans include personal loans from banks or online lenders, auto loans being financing a car, the other one being and so on.
If the instalment payments are made on time then it is reported to the credit bureaus. This may result in an inflow of credit score points if you have a record of problems with loans. It is the same as being on a credit repair process that pays off the balance and gradually clears up the charges.
So rather than dreading and avoiding that huge bill, instalment loans break it into bite-sized chunks that work for your budget. Just be sure to borrow an amount with payments you can truly afford each month.
| Loan Amount | Typical Term Length |
| £1,000 – £3,000 | 1-2 years |
| £3,000 – £8,000 | 3-5 years |
| £8,000 – £35,000 | 5-7 years |
Here’s a quick look at typical instalment loan APR ranges based on credit tiers:
| Credit Score Range | Average Personal Loan APR |
| 720-850 | 10.3% – 12.5% |
| 690-719 | 13.5% – 15.5% |
| 630-689 | 17.8% – 19.9% |
| 500-629 | 23.5% – 25.8% |
Credit Score Impact
Here are some typical uses for instalment loans across various tiers:
| Loan Amount (£) | Common Uses |
| £1,000 – £5,000 | Debt consolidation, moving costs, smaller medical bills |
| £5,000 – £15,000 | Auto repairs/purchase, home renovations, emergency expenses |
| £15,000 – £40,000 | Major home projects, funding college/education, debt consolidation |
Instalment Loan Amount
To give you a rough idea, instalment loans in different amount tiers tend to cover:
- £1,000 – £5,000: Knocking out lingering credit card debt, helping with moving costs, small unexpected expenses like emergency medical bills
- £5,000 – £15,000: Bigger-ticket items like financing a vehicle purchase or repair, home renovation projects, life event costs like funerals
- £15,000 – £40,000: Major home remodelling, paying for university/college tuition, ultra high-level debt consolidation
Those are just general examples of why people commonly take out instalment loans in those rough amount ranges. But honestly, you can use them for just about any legitimate personal expense that’s simply too pricey to cover out-of-pocket all at once.
How Long is the Payoff Period?
Another key factor lenders consider is how quickly you can reasonably pay off the full amount based on your current income situation and existing debts/bills. This payoff timeline directly affects how high those monthly instalment payments will be.
According to recent loan data, most unsecured personal instalment loans range anywhere from 1 to 7 years:
- Smaller £3,000-£5,000 loans often have a 1-3 year repayment period
- Once you get into the £5,000 – £15,000 range, it’s more common to see 3-5 year terms
- And larger amounts of £15,000 or more can extend as long as 5-7 years in some cases
Opting for a longer repayment window helps keep those recurring instalment payments nice and manageable for your income. However, you’ll end up paying more total interest compared to an aggressive, shorter-term payoff schedule.
What To Do When You Have Bad Credit?
Poor credit can make securing affordable instalment loans tough through mainstream banks. But the rise of online lending opened doors for borrowers with less-than-perfect scores.
Get guaranteed instalment loans for bad credit from direct lenders only as they fund those with scores as low as 500. But these loans can be availed from direct lenders! They focus solely on your current income and ability to make payments, not your past credit missteps.
While interest rates run higher (often 25-35% APR), the structured instalment schedule prevents debt from ballooning out of control. A recent study found that “the average APR for bad credit instalment loans was 28.9%.” And making consistent, on-time payments can improve your credit over time.
Comparing Instalment Loan Lenders
You’ve decided an instalment loan is the way to go – awesome! But now comes the tricky part figuring out where to actually get it from. With so many lenders in the game, how do you separate the Diamond Deals from the Dud Dupes?
Luckily, we live in an era of online comparison sites that do the heavy lifting for you:
- Cashfacts
- 1oneFinance
- And more!
Just plug in the loan amount you need and your credit deets. They’ll show you customised rates from a bunch of different instalment loan lenders to compare side-by-side. Boom – easy peasy!
Considering the Full Picture
But listen up – the interest rates themselves aren’t everything. You’ve gotta look at the full lending experience, too:
- Customer reviews and ratings are solid insight
- How’s their customer service game? Responsive or really sluggish?
- Watch for lenders with tons of complaints about hidden fees
A real-world example for you. Two lenders quote the same 14.9% APR on a £10,000 loan. It seems equal at first glance, right? But then you see one has 4.8 stars from over 1,000 happy customers. While the other is rocking a cold 2.3-star rating with scathing reviews about shady business practices.
In that case, you might be more comfortable paying a tiny bit more to the lender with that stellar reputation for treating borrowers right. Customer experience matters!
The Wise Final Choice
So don’t just impulsively jump on the absolute cheapest rate. Take some time to really vet each lender as a whole package:
- Competitive rates? Check.
- Positive customer satisfaction? Check.
- No sketchy fee nonsense? Check.
Accounting for the full lending experience can save you one gigantic headache when you need solid loan support. The research is worth it!
Benefits and Drawbacks
Used thoughtfully, instalment loans provide key benefits like:
- Fixed payments that never change unexpectedly
- Predictable payoff date so you know when it’ll be paid in full
- Improving credit scores from a positive payment history
- Financing essential needs during emergencies
The key is to borrow only an amount that fits your budget’s repayment abilities. Late or missed payments quickly negate any benefits. Having a plan is crucial before borrowing.
Reserve instalment borrowing for essential costs. Managed diligently, they provide cash flow relief while building credit.
Drawbacks to Consider
While advantageous, instalment loans do have potential drawbacks:
- Higher interest rates for subprime credit (example: 35% APR for scores below 600)
- Penalties for late payments, impacting credit
- Potential prepayment fees from some lenders
- Loan becoming unsecured debt that could limit future borrowing
Before signing, carefully review the repayment terms, fees, penalties, and total interest paid over the full term. Make sure it aligns with your budget and cash flow today and in the future.
Bad credit loans from responsible direct lenders in the UK work best as temporary stepping stones – not long-term financing solutions. The goal is using on-time payments to improve your credit and eventually qualify for better rates down the road.
Conclusion
See how the bigger the loan, the higher those recurring instalment payments need to be each month to cover both the principal balance and interest charges? But at the same time, having that structured instalment schedule with a clear payoff date provides way more predictability and stability than revolving credit card debt.
The name of the game is crunching the numbers beforehand to find a loan amount and term length that gives you an instalment fitting snugly within your current monthly income and expenses. Do that due diligence upfront, and you can budget accordingly without stretching yourself way too thin!
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
