What is an Installment Loan?

Warning: Late repayment can cause you serious money problems

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Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

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Author: Internal Marketing Department


An installment loan is a loan borrowed for an agreed set amount that is repaid over several months in installments until the full balance is settled. Many customers will take out or consider making a loan application at some stage in their life, there are many benefits and also negative factors when looking into this but first people need to be made aware of what an installment loan technically is and what customers are originally signing up for.

An installment loan is a set amount borrowed by a customer and is then repaid over an agreed set period of time, each loan agreement will vary between different repayment amounts and how long customers have this loan for but some instalment loans can be borrowed for up to several years and sometimes for even a longer duration. For example a mortgage is a type of installment loan. When a consumer takes out this type of finance loan their repayments will be for a set amount agreed between the lender and borrower, for example if a customer borrows £1,000 it is possible for a loan that amount would be repaid over a 12 month maximum period but this could vary in some cases.   Before choosing the instalment loan is it always worth exploring the different options available at that time so a customer can find a loan with a good interest rate and one that offers a repayment schedule that is over a fair amount of months or years and more importantly it can be affordable. Another thing to consider when choosing how long to take the instalment loan over is the total cost. While the lower monthly payments on a longer loan may seem attractive, the total amount repaid will certainly be higher than a shorter term.

When we consider where installment loans typically exist from we tend to think of banks offering consumers a long term lending solution. Often such loans are associated with long repayment periods, often years, and generally speaking for large amounts of money. This in itself is sensible and logical but what about the short term lending market? There are various companies that can offer short term ways of lending but instead of one month short term loans they will offer installment loans, so customers can now then borrow up to £1,000 and repay at a time that suits them more but normally no longer than 12 months would be considered for this type of financial product.

The market for borrowing a small amount of money for a short period of time is now changing and the options which exist within it are growing. For many years if a consumer needed to borrow an amount of cash, typically smaller than an amount available from a bank or other so called high street lender, the options available were limited and very specific. That’s not to say there wasn’t choice, there was in terms of lenders available but the product on offer was a short term loan that had to be repaid over a single month. A consumer would be able to choose from a range of lenders but all presented the same option, borrow an amount until your next pay date and pay the full amount back.

That’s not to say that this didn’t suit some consumers who just needed a quick money fix but for a lot it has become clear over the years that short term borrowing habits are more complex than this. That’s why it’s so important that the market is expanding and an increase in lenders offering instalment loans instead of shorter term loans is increasing with it. It is always vital that if an instalment loan is taken out that the repayments due are affordable and are met on time as failing to make repayments on any loans can have severe negative consequences.

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

By Gemma Lane