Big-ticket expenses can eat up a large chunk of your savings. Even if you’re building an asset, using up your savings may not be the wisest decision. An instalment loan could help you finance your purchase. Instead of exhausting your savings and putting yourself in a credit crunch, spread the cost across a designated period and repay over fixed monthly instalments with an instalment loan.
This article will throw light on how instalment loans work and tips for applying for instalment loans online.
What are instalment loans?
Instalment loans are a form of short-term credit which you can repay over fixed monthly instalments. You can use an instalment loan to finance a big-ticket purchase or venture. An instalment loan breaks down your cost into smaller, more manageable monthly instalments. Paying reasonable amounts each month instead of tapping into your savings can ease your financial burden.
Your affordability and creditworthiness are crucial to your loan application. These factors dictate the interest rate that lenders set for your loan. To assess your application, a lender would usually look at your income, debt-to-income ratio, credit rating, and employment status. These factors help them decide whether or not the loan amount and term you applied for is justified. With a robust application, you could easily borrow up to £35,000.
How do instalment loans work?
Instalment loans are structured as such to facilitate expensive purchases. You fill an online application form with your details – address, employment status, income, credit rating. Additionally, you’ll have to mention the required loan amount and loan term. Some lenders may want to know your loan’s purpose and how you plan to spend the proceeds. The lender will inform you of their decision after a careful assessment of your profile.
Once your loan approved, the lender will transfer the funds into your bank account. You can use this money at your discretion; however, you should use and repay it responsibly. On the commencement of your repayment period, you’ll have to repay the money and interest over monthly instalments until the loan in paid off. However, you must take all factors into account concerning your affordability when choosing the loan’s tenure. That’s because defaults don’t just look bad on your credit report, they might land you a CCJ. Moreover, when a lender takes legal action, it can have profound implications, hampering your chances of securing credit in the future.
What type of instalment loan can I apply?
Technically, any loan that is to be repaid through monthly instalments over a fixed duration counts as an instalment loan. However, instalment loans majorly comprise of the following:
- Auto/Car Loans: An auto loan is an instalment loan designed for vehicular purchases. Auto loans are a secured form of credit, wherein the vehicle you buy serves as the collateral. The loan term for an auto loan usually ranges between 12 to 96 months. Although, these criteria differ among different lenders. While lenders set an interest based on your credit rating, long-term loans usually have lower interest rates than short-term loans. Although, in the event of a default, the lender can seize and repossess your vehicle to recover their loss.
- Mortgage: Mortgage is to property what auto loans are to cars. A mortgage is a secured instalment loan that people use for buying property. In most cases, the property itself serves as the collateral. Mortgages have generous loan terms, ranging between 15 to 30 years. Like most secured loans, a mortgage comes at low, fixed interest rates and predefined monthly instalments which are usually fixed. However, if you happen to default, the lender can repossess, and potentially sell you property to recuperate their loss.
- Personal Loans: Unsecured personal loans can solve of variety of purposes. You can use it consolidate debt, finance your wedding, fund your home’s renovation, or tend to an emergency bill. The idea is to ease your financial burden through affordable monthly instalments. Unsecured personal loans don’t require collateral security, which is why they tend to have higher interest rates. You can pay off a typical personal loan within 12 to 84 months. If you miss repayments or default, the lender may get a CCJ issued against you. This will damage your credit score and curtail your chances of getting a loan in the future.
Why choose an instalment loan?
Weigh the pros and cons of instalment loans to make an informed financial decision.
- Monthly instalments: The concept of monthly instalments makes it easier to afford instalment loans. Instead of repaying the lump sum with interest, you will be able to repay through small, feasible instalments.
- Easy application process: Most instalment loan lenders have online portals for applications. All you need then is a computer and an internet connection. The application form is relatively straightforward and easy to comprehend. The traditionally inclined ones can visit a lender and apply for an instalment loan. In either case, if your application is approved, the money transfer is comparably swift.
- High-interest rates: Instalment loans may have higher interest rates than their counterparts. Just how high it can get depends on your credit score. If your credit score is below average, you may not qualify for competitive interest rates.
- Repayment terms: You’ll have to manage your repayment budget until the loan is paid off in full. Small monthly instalments require your commitment and discipline. Ensure that you stick to the terms of the contract before taking the final call.
7 tips apply for instalment loans online
The first and foremost tip is to do a careful self-assessment to check whether or not an instalment loan is a suitable option for your needs. Once you conclude, consider these tips to help you apply for instalment loans online:
- Check the lender’s eligibility criteria before applying online.
- Self-assess your application, especially your credit score, before applying with a lender.
- Try to bring in a healthy gap between your instalment loan applications. Too many credit checks in a short span can hurt your credit score.
- Compare different loan offers before settling for one. Find a loan that offers you the lowest interest rate.
- Strictly adhere to your repayment schedule and avoid repayment failures.
- Thoroughly check your loan agreement for unsolicited fees. Also, check if your lender imposes a charge on the early settlement of the loan.
- Try and keep your repayment date close to the payday. This way, you’ll have an idea of how much you’ll be left with for the rest of the month.