A 12 Month Loan Guide

At On Stride Financial, we help approved customers cover their costs by providing personal loans. We have built an online application process geared towards simplicity and transparency, because we understand the importance of feeling confident in the loan you choose. And with variable loan amounts and loan durations, customers can apply for a loan that fits their needs. Our unsecured personal loans are available from £1,000 to £3,000, with loan durations of 1 or 2 years.

What You Need to Know About 12 Month Loans

When you're considering a loan, one of the most significant questions to answer is how long you want your loan repayment term to be. In the case of most short-term loans, the repayment period is short, typically a month or less (these loans are also referred to as "payday loans" because they are intended to get you to your next payday, which often comes within a month). With instalment or other loan types, you'll often find significantly longer repayment periods, anywhere from a few months to a number of years!

"A 12-month loan is more likely to fall into the category of instalment loans, or some other form of long-term personal loan."

In the case of a 12-month loan, the length of the loan repayment period is pretty straightforward — 12 months. This longer loan duration makes a 12-month loan distinct from most short term loans, which often have borrowers make their repayments on their next payday. A 12-month loan is more likely to fall into the category of instalment loans (for example a loan that you repay in several instalments over 12 months), or some other form of long-term personal loan. Additionally, 12-month loans can be secured, unsecured, or can even require a guarantor.

When a 12-Month Loan May Be the Right Fit

If someone is certain that they need a loan, then the first question they ask should be: What is the best loan for me?

12-month loans serve some borrowers better than others. This is true of all loan types — borrowers must determine which type of loan they are best suited to, and as should their lender.

"A 12-month loan is a longer term commitment, with more scheduled repayments and, often, a larger loan amount."

Due to its longer repayment period, a 12-month loan is a longer term commitment, with more scheduled repayments and, often, a larger loan amount and total cost of credit. It stands to reason, then, that an individual considering a 12-month loan should be prepared to repay over the long term. With 12 months of repayments, more financial planning is required, which makes it likely that someone with a steady income and experience with budgeting will have more success repaying a long-term loan than someone who doesn't have the same level of income or financial experience. (Keep reading to learn more on building a budget.)

Understanding Long-Term Interest Rates

Another key aspect of a 12-month loan (or any longer-term loan) is the way the interest rate is structured. All lenders will charge interest with their loans, as this is how they cover the opportunity cost of lending money.

One of the most challenging aspects of providing a loan from the lender's point of view is determining which borrowers will be able to repay in full, and which won't (when we talk about the "risk" associated with lending money, this is what we mean). With different types of loans — short-term loan versus instalment loan versus mortgage loan, and so on — come varying degrees of risk. In the realm of payday loans, the average customer tends to have a less-than-perfect credit history. This suggests to a lender that the customer has a higher risk profile, and thus, they may charge a higher interest rate to balance the increased risk.

"With different categories of loans come varying degrees of risk."

With longer-term loans, the amount of money changing hands is often higher than a short-term loan. Since the amounts are higher, lenders may tend only to approve customers with a better credit history. These longer-term loan customers tend to have a good history with credit, and so lenders consider the risk to be less, and are comfortable with a lower interest rate.

Building a Budget

In the case of a longer-term loan, one of the key benefits is knowing exactly how many payments will be made, and when they are scheduled. This allows you to plan ahead, marking your calendar with each payment date, and ensures that you'll know exactly how much you need to repay in the end. However, just putting a few X's on your calendar may not be enough to ensure prompt and full repayment.

Making a budget can go a long way towards securing your prompt loan repayment, which in turn will help you avoid late fees, or in the worst case, debt collectors and damage to your credit rating.

Know How Much You Spend

The first step to building any budget is to understand the way that you spend each month. Look at not just how much you're spending, but where that money is going, and how much of what you spend each month remains consistent. For instance, do you spend about the same amount on groceries each month? Are there certain months where you spend quite a bit more than others? While all of these spending nuances won't necessarily end up in your budget, having a clearer picture of what your spending looks like from month to month can help you anticipate when making your repayment may be more difficult. If you expect to spend more money in December, you'll know that you need to take extra care in planning your loan repayment for that month.

Know How Much You Make

While knowing what you can expect to spend each month is useful information, it's only truly functional if you can place it next to what you earn. By calculating the difference between these two numbers, you'll understand generally how much extra you have available to spend once you have covered all your necessary expenses. This can be a useful practice for pretty much anybody, but for an individual who is considering a 12-month loan this is a must. Only by understanding the difference between what you make and what you spend can you safely plan on a loan repayment amount — a pretty significant aspect of taking on a long-term loan.

Want More Help?

While analysing your income versus your spend is a great start, it doesn't hurt to prepare a more comprehensive budget. Download On Stride Financial's Monthly Budget Worksheet, to help you determine whether you can truly afford the loan amount and repayment terms that various lenders are offering.

12 Month Loans FAQs

What can a 12-month loan be used for?

The list of things that loans have been used for is long and varied. While one person may need emergency funding for a roof cave-in or broken-down automobile, another might take out a personal loan for a planned expense, such as a home renovation. The reality is that once the funds have been received by the borrower, it is up to their discretion as to how they will use that loan.

That said, taking out a loan without reasonable intention and a clear plan to repay could lead to issues down the road. Anyone who is considering a loan should have a clear plan of action as to how they will repay, with an understanding of how much will be owed per repayment, and where that money will come from. Making a budget is a good place to start, as it defines a point at which the borrower can reasonably repay their loan — a fundamental piece of information.

How do I find the right loan?

Finding the right loan isn't just about getting the funds you need. It's about selecting a loan that works for your unique financial situation — a loan that will allow you to repay on time and in full.

Start by determining how much funding you need — if it's a smaller amount, a short-term loan may work best; for larger needs, a longer-term loan, such as a 12-month loan, may be the best option. And remember, while determining how much you need is important, it's just as important to know what you can afford to repay. A rule of thumb when applying for a loan is to only take out the money you can afford to pay back in the future.

How should the loan duration impact my loan choice?

The amount of funding needed is one of the most important considerations prior to selecting your loan, and not just because you want to cover your upcoming expenses. The amount of cash you borrow can help determine the length of your loan, as many different loan types come with distinct parameters on time. For instance, if you need a smaller amount of cash and have less-than-perfect credit, it's more likely that you'll want to apply for a short-term loan. On the other hand, if you're applying for a larger loan amount, the amount of time over which you can expect to repay will likely increase. In this case, you'd be more likely to want to apply for an instalment loan, or another longer-term loan option.

Ultimately, the duration of the loan can be affected by a number of variables, including the loan type, length of loan and, perhaps most importantly, the amount of funds. When looking for the right loan, the most important thing is to be sure that the burden you're taking on is one you can handle, so as not to find yourself with added debt.