Instalment Loans Explained

There are a wide range of short term personal loans available on the UK market. However, instalment loans have in recent times been mooted as a viable alternative to traditional payday loans; nowadays often referred to as 1 month or 30 day loans. Instalment loans are designed in principle to be repaid over a longer period than old-fashioned payday type products and by doing so they can make repayment much more manageable for borrowers.

However, instalment loans are not for all people and all circumstances and sometimes it can be better seeking out alternatives such as a guarantor loan or perhaps even an old-fashioned payday loan if circumstances dictate doing so. Hence, understanding the basic ins and outs of an instalment product is crucial if you are considering applying for one.

How Do They Work?

Instalment loans work by the borrower, upon acceptance being provided the money required in one go. As soon as the money is provided, the clock starts ticking and daily interest starts. the borrower will have a pre-arranged payment schedule with the lender whereby a number of repayment dates, usually 3-6 are agreed. On the agreed dates, the required instalment payments will be taken out of a dedicated account, often by way of a Continuous Payment Authority (CPA) arrangement.

The borrower will need to repay the agreed number of repayments over the agreed period. This will amount to a portion of the loan’s capital plus interest, with interest being accrued and calculated on a daily basis.

For example, a borrower may be accepted for an instalment loan over a period of 6 months. In this case, the agreement would include 6 repayment periods, usually around the day upon which the applicant receives their wages. Each payment goes towards clearing the loan and interest due. Assuming repayments are kept up to date, the borrower will have their debt cleared within the agreed timeframe.

What Are the Benefits of an Instalment Loan?

Instalment loans are a form of short term credit. This means that the interest rates charged on them, as in the case of a payday or other form of short term loan will be higher than high street loans. However, in most cases, the reason for taking out an instalment loan is the inability to get a loan through other channels due to poor credit or a lack of availability of other options for getting the much-needed money.

These loans do have a number of benefits however:

  • More Manageable Repayments – Rather than having to clear the loan in full; capital plus interest, borrowers can pay their debt off in more manageable and spread out payments. This is often much more financially viable than having to pay potentially a few hundred or even thousand Pounds in one payment, allowing borrowers a little more breathing space in a financial sense, so long as they remain on top of their repayment schedule
  • Quick Funding – Upon approval, most instalment lenders are able to fund loans within a matter of hours or even minutes. This is usually achieved through the lender using the Faster Payments Network, which allows for money to be transferred very quickly to approved borrowers. This can sometimes be done in as little as 3 minutes
  • No Collateral – Instalment loans are a form of unsecured personal credit. This means that unlike loans such as logbook loans or even an everyday mortgage, there is no asset(s) needed to secure the loan against. Whilst this increases the risk to the lender and therefore the loan’s interest rate, it does mean that more people than not are able to reasonably apply for an instalment loan

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<strong>What is Our Criteria For Applying?</strong> 
Every lender on our website has their own specific criteria by the basics are mentioned below and you must have a guarantor to be eligible. Simply select the lender of your choice and you will be taken directly to their website where you can apply. You will be required to submit your details including:<li style=”text-align: center;” data-mce-style=”text-align: center;”>Name (must be over 18 as the borrow, 21 or 25 as the guarantor)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Residence (your chances will improve if your guarantor is a homeowner)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Employment status (must be employed or on a pension)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Income (earning at least £600 per month and able to make repayments)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Monthly expenses (not have too many loans open or in major debt)</li>
You will then be asked to include the details of your guarantor and as mentioned above, this is usually someone who you know and trust and wants to help you with your personal finances. Ideally, a guarantor with good credit will maximise your chances of being approved based on the idea of ‘if someone with good credit trusts you, well we can too.'<strong>How Much Can I Borrow From Guarantor Loans?</strong>Guarantor Loans gives applicants the chance to borrow £500 to £15,000 depending on the lender. Some lenders we feature like Buddy Loans only have a maximum loan value of £7,500 and TFS Loans is the only lender that stretches up to £15,000.Factors that can influence the amount you can borrow revolve around having a good guarantor. One that is a homeowner, with solid employment, income and good credit rating will maximise your chances of borrowing the largest drawdown possible.The lenders featured on Guarantor Loans see a homeowner as someone who has already gone through the rigorous process of credit checking and affordability and if they can afford a house, they should be able to act as a guarantor for you.By comparison, having a guarantor that is not a homeowner offers slightly less security and means that amount you can borrow is slightly less too.Higher amounts may be available to those who already have a better than average credit rating, are homeowners themselves and a repeat customer with the lender who has already paid their loan on time. To apply directly with your lender of choice see <a href=”” data-mce-href=””>direct lenders</a>.<strong>What Does The Guarantor Have To Do?</strong>Upon completing an application, the lender will typically send you a <a href=”” data-mce-href=””>pre-contract loan agreement</a> and SECCI (Standard European Consumer Credit Information form) which will highlight the terms of your loan. You and your guarantor will be required to review the terms of the loan, including the loan drawdown, fees, repayment dates and responsibilities – and this can be signed via an online verification process using your email and mobile phone.The lender will usually carry out an individual phone call with you and your guarantor to ensure that you both understand the responsibilities and what is required of you – notably that if you cannot make repayment, your guarantor will be required to pay on your behalf. Further to some additional credit and affordability checks, funds can typically be transferred within 24 to 48 hours (or sometimes on the same day).<strong>Are Guarantor Loans Available For Bad Credit Customers?</strong>Yes, even if you have a history of adverse credit, <a href=”” data-mce-href=””>CCJs</a>, bankruptcy or IVAs several years ago, you can still be eligible. The idea is that you are using your guarantor and their financial history to ‘back you up’ and give your loan extra security. However, it is noted that your guarantor should have a good credit score and consent to co-signing your loan agreement.<strong>How Soon Can I Receive Funds?</strong>Guarantor Loans works with lenders that can facilitate funds within 24 to 48 hours of approval, or sometimes on the same day.When your funds are successfully transferred, most lenders working with Guarantor Loans will send the full amount to the guarantor’s debit account first. This is a standard security measure carried out by lenders to ensure that the funds are going to the right person and confirms the involvement of the guarantor. The guarantor usually has a ‘two week cooling off period’ where they can decide to pass on the money to the main borrower or they can change their mind and return the funds with no extra charges.