Installment loans - are they the best loan option? You can't know that for sure; at least, not yet. Take a look at the pros and cons of installment loans and see whether or not they are worth committing to.
What Are The Pros Of Installment Loans?
Since we're talking in-depth about everything related to installment loans and their pros and cons, let's dive into their advantages. What benefits do installment loans bring to make them superior to other kinds of loans? And why should you consider getting one?
They can be repaid affordably
The biggest advantage of installment loans is, perhaps, the very fact that they can be repaid in installments. This means that they become so much more affordable for the majority of borrowers. Unlike traditional payday loans, which were only offered for a month, and which had to be repaid in full, including interest, modern installment loans allow you to repay in regular installments over the course of several months. This is much easier to manage financially and fit into your budget. Moreover, you will undergo an affordability check which will ensure that you are financially equipped to repay this loan.
They are accessible with any credit rating
Almost everyone has struggled with bad credit at some point in their lives. And if you've ever been in that boat, you know what it entails: limited borrowing allowances, shorter repayment terms, and a truly scandalous interest rate, but worst of all, it means you can get rejected for the loan. Not only do you not get the money, but your credit rating will also suffer. Installment loans accept people with all kinds of credit scores, so you don't have to feel self-conscious about your low rating. Take advantage of this option and get approved for the loan you need.
What Are The Cons Of Installment Loans?
We can't talk about positives without talking about negatives, right? So, let's address less than flattering aspects - what are the risks you take when you get a payday loan? Why should you avoid them? What should you be concerned about?
The interest rate is high
We've arrived at one of the most sensitive topics surrounding loans - the interest rate. A lot of types of unsecured loans have very high interest rates, especially if they accommodate bad credit, so this shouldn't come as a surprise. However, even though it's not unexpected, it still affects the way you borrow money. Depending on how long you repay a loan, a high APR can even make it so that you pay two or three times the amount you borrowed to begin with. Probably anyone would agree that is absolutely massive and it may just be a deal-breaker for some borrowers.
They can lead to affordability issues
One of the recurring issues with payday loans with bad credit is that they can lead borrowers down a very bad path. You see, when you borrow money on a loan that you cannot actually afford to repay, you find yourself in a situation where you have to scramble to get the money, so you might be tempted to get another loan. Similarly, if you cannot afford your monthly expenses, you may come to rely on payday loans and pay them off, only to get another one immediately after. That is a financial vicious circle and it is not sustainable long-term, so you should be careful and make sure you can afford your loans. If you are in this situation or ever experience this kind of thing, do not hesitate to ask for help from free debt advice organisations, such as Citizens Advice.
What Are The Alternatives To Installment Loans?
But if installment loans do nothing to strike your fancy, that's alright! There are other options to explore that can help you achieve the same result. Let's talk about what alternatives you may want to look into:
|Alternatives To Installment Loans|
|Credit cards||Is there anything a credit card can't do? Depending on the amount you want to borrow, credit cards might just be your saving grace. That is, if you have a good credit rating, the interest rate is lower than on installment loans and you can get a good deal.|
|Peer to peer loans||Why borrow from a traditional financial institution, when you can borrow from your peers? This can be a great option if you're not a fan of banks and whatnot. However, please be aware that your credit rating is still important, so don't think you can circumvent that.|
|Secured loans||If you need a large sum that is just not covered by payday loans with no credit check, secured loans have got you covered. Of course, you need to have an asset to put up as collateral, and you also run the risk of losing it to the lender, so exercise caution.|
|Family loans||If you would like to keep it in the family, you can do that, too, and you enjoy the advantage of not having to do a credit check, and maybe negotiate a low or non-existent interest rate. Financial issues may divide your family, though.|
|Saving up||The best kind of money is that which does not come from debt. You can always set some money aside and try to save up to cover certain expenses that you are planning for the future. That can be done with no debt, interest, or credit checks, but it can take a long time.|
In conclusion, installment loans can be a very good option for some, but not for others. Their very attractive advantages may be the reason why people prefer to choose installment loans in the UK, over other types of lending, but there are also alternatives you may wish to consider.