WHAT IS AN INSTALLMENT LOAN?

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 a few 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 that will be owed will be for a set amount agreed between the lender and borrower, for example if a customer borrows £1,000 it is most likely a loan for that amount would be repaid over a 12 month maximum period but this could vary in some cases, the repayments on this would most likely be up to about £150.00 and I imagine that about nine amounts would be due which would make the total amount paid back at around £1,350. This is quite a high interest loan and most lenders would charge much less interest than this. 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.

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. If as a consumer you are considering changing the repayment term then contact the lender and advise what you want to repay but also if possible make additional repayments or make early repayments to get the account cleared and paid off much quicker. The customers would not be penalised for this and they may find with earlier repayments the amounts due are less as some of the charges and interest may be able to get removed that could have previously been added.

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 lending habits are more complex than this. As time goes on it is becoming more increasingly clear that consumers now view the short term lending market as part of their monthly income and budget requirement to ensure repayment to a range of life expenses from bills to cars and more can be made and not be missed. 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.

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SHORT TERM LOANS

In the past the short term loans market has received a lot of criticism for the way in which it operated and the treatment its customers received. As the sector grew the attention it received from the media and governing bodies alike made it evident lenders were pushing the limits in terms of its practices and equally providing minimum effort to ensure customer service was a major consideration of its overall operation. This realisation has certainly helped pave the way for a more consumer friendly product but also ensured the lenders which remain are able to be successful due to their continued commitments to getting it right. To understand the improvements it is fast best to look back at how far the market has come.

When short term loans first became available they offered something consumers had not had access to before. Whereas in the past a consumer would need to discuss loans of any size with their bank or a shop floor establishment, these loans were available pretty much at a click of a button. In order to be approved typically the customer would complete a relatively short application form online and receive a quick decision from the lender. The product too was simple to understand and offered a clear repayment structure. The old style short term loans asked for a lump sum repayment to be made on the due date of the loan. An applicant could request an amount from £100.00 up to £500.00 typically and when the agreed repayment date arrived this amount plus interest was to be repaid. Often these early loans would apply interest specific to the amount borrowed rather than the time taken which proved expensive. This meant whether a loan was for 15 days or 30 the amount was the same. This way of working was often based on the fact the whole product was designed around the concept of repaying on the customer employment pay date; not therefore considering the time the loan has been in operation. A costly feature for those applying close to their individual pay date.

The whole principle of a lump sum repayment although suitable for some, for most, proved simply unaffordable and meant many consumers borrowed from one lender to satisfy another, creating a cycle of debt. This expense was further compounded by lenders when an alternative repayment option was introduced, these were known as extensions. An extension meant the customer could simply repay the interest applicable on the loan when their due date arrived and then delay the lump sum repayment until their subsequent pay date. Although again a singular extension may not have been costly, many consumers found themselves continuing to extend over a large time frame and ending up stuck when the lump sum repayment was still unaffordable. Another costly feature for the user of such loans.

To seal the deal these lenders were also known to be unhelpful and showed no sympathy to those customers who were in genuine financial hardship and who had tried through extensions and reduced offers, to keep their heads above water. It is therefore no surprise that changes were enforced and those lenders of short term loans who were unwilling to adapt are no longer in existence.

Now things are different, instead of lump sum repayment loans the market is offering a more flexible and consumer friendly loans which are better checked for affordability of repayment. Instead of asking a customer to make one large repayment, an instalment loans lender will offer a range of repayment terms, typically from 3 months up to 12 months. This allows the applicant to make a selective decision as to how best to repay the loan. There are also new practices being brought in by lenders to ensure they are lending responsibly. These checks are mainly focused around assessing affordability. Often an instalment loans application will now ask the customer to supply all information relating to their monthly expenditure which allows the lender to decide clearly if the applicant has the means to make the repayments as set out in the loan agreement. This combined with better analysis of the customer credit worthiness and previous repayment history helps to ensure a true picture of the customers current financial circumstances. It would therefore be fair to say that the short term loans market is gaining back some of the positives it was originally recognised as having, which in time, will hopefully ensure the market is able to remain a useful one for the consumers who turn to it.

Understanding short term loans

There can be a number of different borrowing things to consider before any financial application can then be made someone. That is just one of the many reasons why people should always explore the different avenues of borrowing rather than them just rush into applying for the first piece of finance that comes along their way. People should know that they definitely need the finance in question and that they definitely need to borrow any amount and then if so any amount taken must be a realistic figure. Any loan borrowed must then be affordable for that person to manage so the debt can be repaid back to the required lender. The type of finance can then be considered and here there are often multiple borrowing options, people can often take out both short term loans and instalment loans where different amounts are borrowed and then repaid over a number of different repayment terms. Credit cards are another very common way for different people to borrow money. In the article below I am going to focus solely on short term loans as a way of borrowing and will help people looking to understand what these offer to people.

Short term loans are loans when people tend to borrow small amount of cash for repayments then due back to lenders within a twelve month maximum period of time. People borrow short term loans when they need low loan values and then they aim to repay the debt anything from one single month to the maximum duration of twelve months. People tend to borrow these loans for amounts somewhere between £100.00 and £500.00 or sometimes people can borrow up to £1,000.00. They are used as a short term financial solution and should therefore never be used as a way to borrow any sum of cash for a long term period of time. People should know that taking loans like these can often be an expensive way to borrow the small loans for a very limited period of time. Some short term loans are more expensive than others so always consider that fact.

A major benefit of the product would be the speed in which people can get the money in their chosen bank account whenever there short term loan application is accepted. People apply for the loan usually online or occasionally over the phone in an application process that should only take a matter of minutes to complete. If that same application is then accepted by any lender than the potential borrower can then look to receive the funds in their chosen bank account the very same day of their application being made. There can be some lenders who look to fund their successful applicant within just minutes of their loan being approved. Short term loans can therefore be very useful for people who all of a sudden have an unexpected bill arrive as they can get accepted for their loan quickly, then look to make that requirement payment as soon as possible.

Understanding Short Term Loans

In order to ensure the correct lending resource is obtained it is important to consider all the options presented in the short term loans market. This online borrowing facility has been available long enough now that most consumers are aware of the resource which is offered but may not be aware of the full range of loans which now can be obtained. Although as a whole the market has been operating to offer small loans for over a decade, recent years in the market has seen short term loans be transformed into a much more flexible lending resource. For many years this type of borrowing meant a very specific type of loan which over the years became in many respects an outdated lending resource. As the majority of consumers will know this type of short term loan was known as a payday loan and it offered a very simple and somewhat restricted way of borrowing. As mentioned, recent years have seen the short term borrowing market expand to offer a better selection of loans to consumers, in an effort to continue to meet the realistic needs of the modern day applicant.

Nowadays short term loans are focusing their efforts on offering a product which is a combination of affordable, flexible and therefore realistic. As the years in which short term loans have been in service have passed, it became increasingly clear that the true needs of consumers who use this type of borrowing have changed. Whereas in the early days consumers were able and prepared a specific type of repayment term; offered by the payday loan, nowadays the way in which the modern day consumer manages their finances has changed and as a result so have short term loans. The payday loan which was first into the market aimed on allowing a simple and effective borrowing resource in a finance market which do not account for consumers who only needed a short loan, for a short period of time. The payday loan was delivered in a single repayment term package which meant a consumer could borrow until their next employment pay date, at which time they would repay the entire balance. This meant making repayments in the region of £300.00 to £400.00 as a lump sum.

Nowadays short term loans are able to be more flexible thanks to a massive shift towards instalment based loans. Instead of offering the payday model, most lenders instead offer consumers the ability to borrow and repay the loan over a number of agreed monthly repayments. Typically consumers nowadays are used to making instalments towards the goods and services they require and therefore making instalment based repayments for short term loans seems far more fitting. The change in product offering means consumers now have better control over the amount which is repaid on a monthly basis, depending on the period of repayment which is selected. This also means consumers can elect to repay over a longer period, if needed and understand the about of interest which is repaid is reflective of this time period.

Payday Loans for Bad Credit Can be Available

Before a financial application of any kind is submitted by someone there are a number of different things to consider by that person. They need to know that they actually need the finance so if they are accepted then at least the money can be put to good use. Any amount taken out by someone again if accepted must be both realistic and then affordable for that person so the debt can be repaid as agreed with the lender but also at an affordable rate. Now when it comes to borrowing money there are different options to consider such as both short term loans and instalment loans, they can depend on how much needed to be borrowed as to the finance someone could select there. Credit card borrowing is also very popular for a whole host of different people to take out. When it comes to borrowing money it is likely people will select one of those three and each have their benefits and negatives with the product so take that into consideration. If someone suffers with poor credit then they should read the article below as I will explain more about loans for bad credit and where they can be found.

There can be some occasions when people need money and they need it quickly but they have poor credit. It can be because of that they find this much tougher than the average person would. People can often get bad credit by taking out finance in their past and then not making their required repayments on time and in some cases they simply do not pay back their bill at all. If they do not settle the account as soon as it becomes overdue then their credit rating is negatively affected and it can remain on the file for up to six years so it is a severe negative consequence when payments are missed. Most people will always try to avoid this whenever possible. If they are looking at taking out loans then most likely if they apply to a typical major bank or building society then they can get declined more often than not. There can however be specific lenders that offer loans for bad credit for people in these scenarios.

The most common loans for bad credit are the payday loan. This is when people take out small loans for amounts somewhere between £100.00 and £500.00 and then they have to repay that debt with high interest on their next payday. People only take out these loans out for a maximum of thirty days as they are always due in full on the borrowers payday hence the name payday loan. Lenders can charge high interest amounts of up to £30.00 per £100.00 borrowed by someone as it will be risky to lend to people with poor credit as they not pay back the loan. It still however can give the customer the chance to get finance approved with poor credit and they can take out payday loans quickly when money is needed.

Lending Stream Loans

As many of us are aware the market for short term loans have changed quite dramatically in the last few years. There has been a clear shift in not only the product being offered by lenders but also the approach being taken by remaining lenders. By saying ‘remaining’ lenders I am also highlighting the fact that many of the lenders who once existed in this market are now no more. Although online short term loans have been available for 10 plus years, the road has not always been a smooth one. The original product offered by many lenders was gradually highlighted for its flaws and restrictions when it come to offering the best possible lending solution to customers. Many of us are familiar with this product, widely linked to the online borrowing market; the payday loan.

Many lenders for many years offered payday loans, such as the lender Lending Stream. A payday loan allowed the applicant to borrow an agreed amount until their next employment pay date when the agreed amount would be repaid. Payday loans varied in value but were often in the region of £300.00 and given that interest was usually charged at about £30.00 per every £100.00 which was lent, a loan of this value would have meant a repayment of £390.00 on the agreed due date. Although the payday loan product was simple and easy to understand, many lenders such as Lending Stream, found that customer struggled to make the lump sum repayments requested of them. In such instances customers turned to expensive extension fee repayments which allowed the interest of the loan to be paid to avoid a default whilst not reducing the amount originally owed.

What became clear over the years was that the payday loan product was no longer able to effectively meet the modern day requirements of the short term loan user. As a result of this some big changes were made within this market. Not only has the product offered nowadays changed but also the way in which lenders approach the process of approving these short term loans. Taking Lending Stream as an example, they now offer customers the opportunity to apply for short term loans which can be repaid over 6 monthly instalments. The idea being here that the term is fixed and therefore avoids the need for the expensive extension payments and also the monthly repayment amount is considered more manageable. Given that the term of repayment has been extended in this instance, the repayment amount each month is considerably less than the lump sum style of the payday loan. The other change which has taken place is within the application approval process as mentioned. Nowadays lenders take into account far more than just simple snapshot of the applicants credit reference file. This means other elements are used to determine if the requested loan is suitable to the individual in question. Whether this be related to affordability and budgets or employment status and related details, the point being the checks nowadays are more specific to the individual applicant.  

The Checks Completed for Short Term Loans

In recent times the application process for short term loans has become more detailed and in-depth. This means lenders are taking extra measures to ensure the loans which are being granted are fit for the intended purpose. Although short term loans have always been known for their quick access and easy application process, the years in which the market has been in operation has shown changes needed to be made. So although nowadays the process of applying from a customer’s prospective is still straight forward and relatively quick, the lenders have a new range of checks which are taking place behind the scenes, so to speak. These checks are going a long way to ensure consumers are being offered lending resources which are suitable and therefore repayments which are a realistic reflection of their requirements. Today we will be reviewing these practices in a little more detail in an effort to better understand how a short term loan is processed.

All short term loans now require a level of credit checking in the vast majority of cases. This means the applicant will be subject to a review of one or more credit files in order to progress their application. Lenders will use a variety of sources in an effort to understand two factors. The first of which is the applicants previous history of repayment. This could be anything from a current account through to previous monthly loan repayments. This previous history is important as it provides an idea into how the applicant has behaved with credit commitments in the past. The second point of this check is to understand in better detail what active credit commitments the customer already has. This could be anything from other short term loans through to car finance or traditional bank loans.

The second element which now appears in the vast majority of short term loan application processes is budget based information. This means as part of the online application form the applicant is asked to provide honest and accurate monthly budget information compared to their monthly wage. This information is often broken down into sections, such as rent and living expenses as well as a section to detail other existing credit commitments. Lenders will then use this information alongside the applicant’s credit reference file and other elements of the application to better understand if the customer truly has the ability to repay the loan for which they have applied for.

Other more manual checks which are likely to take place with these sort of short term loans include employment validation and duplication checks. For employment checks this means the lender will make active efforts to ensure at the point of considering the loan that the applicant is employed as they have stated. This of course is very important in ensuring the customer has the basic means to support the proposed loan. The other manual check, which is likely to take place before approving the loan, is a check to ensure the customer and their details is not linked to other accounts known by the lender in any way; which may be of negative consequence to the present application.

Considering Your Credit When Taking Loans

When your credit rating is considered poor or bad, it can prove difficult to be able to obtain credit again. Whether this is a credit card or a traditional loan, having a history of poor repayment can make proving your current ability to repay a financial commitment difficult. The status of ‘poor’ or ‘bad’ in terms of your credit rating is dependant in part to the company who are considering a form of credit. Although there are different ratings which can be awarded in terms of how you have performed previously with your credit based commitment, often lenders will review the file for themselves and based on their own criteria deem whether their product is suitable or not. This means the decision you receive regarding a potential lending resource could easily vary from one lender to the next. Although many of the more traditional lenders are likely to have similar criteria given the value of their loans, there are alternatives which may be able to provide a route back into credit. One such alternative is the short term loan. These loans have been available to consumers online for nearly a decade now and given the value of the loans offered by such lenders tend to never be greater than £1000.00, the criteria for approval is different to mainstream credit.

Short term loans are a resource for borrowing a small amount of money over a short period of time. The values of such loans usually range from £100.00 through to £1000.00; with the higher loan amounts usually being granted to customers who have a proven repayment history. The purpose of these loans is to assist consumers over a short period of time, and therefore are not designed to help on a continual basis like more classic borrowing. The repayment terms are flexible and normally allow customers to repay over anything from a few months through to a year. As a result of these two facts there is often a short term loan which is able to fit the bill. Where short term loans can be of extra value is concerning an individual’s credit rating.

What short term loans can do is offer the opportunity to demonstrate an ability to repay credit. For those of us who have previously shown a lack of ability in repaying financial commitments, borrowing from a short term loans lender and repaying the agreement as required may give the opportunity to out an updated ‘stamp’ on your credit rating and therefore an updated view for future lenders to potentially consider. Of course the key here is to borrow in a sensible manner and repay the instalments which are set out by the lender as required. Be mindful to consider the options set out by the lender and ensure the correct resource is utilised. As discussed here there are many flexible options to choose from so many of us will find there is loan which can match our existing budget and its requirements. For more advice regarding the most suitable repayment terms why not speak to the lender directly.