Installment Loans Compared to Other Loans

When considering your short term borrowing options there are generally two different choices which are available. These are commonly known as the installment loans and then the payday loans. The reality is both types of loans are one in the same; they are both ‘short term, high cost’ borrowing resources. Both exist online and can be applied for via any internet enabled device. These loans exist to serve the needs of consumers looking for a small scale borrowing choice. For many years short term loans only existed in the payday loans package and it is only in recent years that the product offering has been extended to include that of installment loans. The launch of the installment loans is a direct result of the Financial Conduct Authority and their introduction as the market regulator in 2014. So what are the key differences between the payday loan product and installment loans and why are installment loans increasingly becoming the preferred choice amongst consumers. Today let’s look at these two short term loan options and how they offer different repayment options to consumers within the same market.

The payday loan as mentioned above was the original product offered by short term loan lenders. The payday loan allowed a very simple method of borrowing a small sum of money and was the first of its kind in terms of a completely online based application and approval process. Consumers could submit a request for borrowing online and then be potentially granted access to a loan ranging from £100.00 to £300.00 in value. Like all loans there were exceptions, in terms of the amount available for borrowing, meaning some lenders would consider higher loan values up to as much as £1000.00. If successful in their application, the customer would then agree to repay the entire loan value as well as the interest charged by the lender as a one-off repayment come their next employment pay date. Depending on the original amount borrowed, the amount due on the customer’s next employment pay date could result in a relatively large financial commitment.

Installment loans arrived in 2014 and were introduced as an alternative repayment option to that of the lump sum style of repayment offered by the payday loan. The FCA were keen to ensure consumers had choice and flexibility when it came to their short term loan needs and as such wanted to ensure customers were treated fairly. Installment loans give customers the ability to split and spread the cost of their loan, over a number of pre-agreed months. This means for customers unable to afford the lump sum style of repayment offered by payday loans, installment loans could be able to help. Depending on the lender and the specifics of their service, there is lots of choice available when it comes to installment loans. This could mean 2 monthly repayments over as many as 12 for example. This truly gives the ability to select a repayment amount which is affordable, realistic and also sensible to the individual circumstances of the applicant.