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A wise guide to…

Instalment Loans

Instalment loans are loans that are repaid in regular instalments. Depending on the size and term of the loan these instalments will likely be repaid either weekly or monthly.

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Representative 69.9% APR (variable). Representative Example: If you borrow £1,500.00 over 24 month at a Representative rate of 69.9% APR and an annual interest rate of 54.19% (fixed), you would pay 23 monthly repayments of £103.64 and a final payment of £103.74. The total charge for credit will be £987.46 and the total amount payable will be £2,487.46.
Choose Wisely is a trading style of Choose Wisely Limited and is a free to use price comparison website. Choose Wisely Limited is authorised and regulated by the Financial Conduct Authority as a credit broker not a lender, firm reference number 730574 and is registered with the Information Commissioner’s Office number Z3106681.

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Representative 49.7% (variable).

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If approved, the cash can be in your account in as little as 15 minutes.[†]

Table of contents

Written by Mark Grimley
Read time: ~5 mins
Published: 27th July 2020 Updated: 28th July 2020

What are instalment loans?

With traditional payday loans, customers typically borrow a small amount of money from lenders and repay the full loan (with interest) in one repayment, often inline with their next payday.

In certain situations high cost short term loans provide the instant cash required to get out of a sticky situation. However payday loans must be treated with care, as if mishandled they can result in increased financial pressure or cause a continuation of existing financial problems. Unlike payday loans, Instalment loans offer more predictability by allowing customers to plan out manageable repayments of a small loan over a longer period of time.

How do instalment plans work?

Instead of repaying a loan with one repayment, instalment loans allow borrowers to break down their loan repayment and schedule their repayments over weeks, months and, in some cases, years. This can be beneficial when planning how to pay for car repairs, outstanding bills and even day to day costs.

How are installment loans calculated?

Direct Lenders in the UK base the cost of instalment loans on a number of factors. These include the following:

  1. How much you intend to borrow

  2. How long you intend to borrow it

  3. What APR rate you agree to for the loan

  4. Your income

  5. Your credit score

Although these factors all affect the amount you could borrow, they more importantly also form the basis on whether a lender will even lend to you in the first place. Lenders will look at each of these factors and use them to determine the risk associated with lending to you. The more risky you seem as a borrower the more they will charge in interest. This is in order to cover the potential for any missed payments.

How to apply for an instalment loan?

In order to receive an instalment loan, you need to apply with a direct lender. This application process requires a hard credit check (which does affect your credit score).In addition to a credit check, you need to verify your income, bank account, phone number, some form of identification and a guarantee that you intend to pay back your loan. Depending on your credit score, lenders may also review how much debt you have and your monthly transactions.

Before you do apply, Choose Wisely can help you confirm if you will be accepted in principle by specific lenders by checking your application against a full panel of lenders (which does not affect your credit score).

What are examples of instalment loans?

Most direct lenders in the UK provide an option to pay back a loan in installments as opposed to paying back the full loan amount in a lump sum. Many loans commonly use installment plans due to the type of transactions being completed. Mortgages, personal loans and car loans offer instalment plans since customers pay a fixed interest rate and predictable payment plan.

What are the best instalment loans for bad credit?

If you have a poor credit history it’s unlikely you’ll be able to access the cheap loans offered by the highstreet banks and supermarkets. The best chance of acceptance is to compare alternative lenders in the market that offer products designed for those with bad credit, such as guarantor loans or short term loans. To compare lenders that will accept your application for a bad credit instalment loan you can complete a loan search on Choose Wisely.

Instalment loans FAQs

What happens if you default on an instalment loan?

In the event that you are unable to repay your loan on time, you may be charged added interest and a default fee – making your loan more expensive overall.

The key thing to remember is that if you are struggling to keep up with your payments, it is important to notify your lender as soon as possible.

How do instalment loans affect your credit score?

When you submit a loan application with a lender you will be credit checked. If you are declined for credit or make multiple applications in a short space of time this is likely to reduce to your credit score.

How many instalment loans can I get?

There isn't a limit to the amount of loans you can get. However, everytime you apply for a loan the lender will review your outstanding debts. If they believe the loan to be unaffordable you be declined.

Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.

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Important Information.

All of the information in this guide is correct at the time of writing.

Rates shown are quotes based on your personal circumstances, are subject to status and are available to those aged 18 and over. Rates available range from a minimum of 3.9%APR to a maximum of 1575%APR Representative and loan repayment periods range from 3 to 60 months.

[*][†] Once accepted, your loan can be transferred to you in as little as 15 minutes. The time that it takes for the loan to show in your bank account will depend on your lender and your bank.

If you need financial advice you can visit stepchange, speak to citizens advice, call the national debtline or speak to moneyadviceservice.org.uk.

If you've been declined, please refer to your credit report to gain an understanding of why before making further applications.
Your score can be accessed for free via any of the main credit reference agencies such as Credit Karma, Clearscore or Experian.

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk