Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
Representative Example: Amount of credit: £550 for 7 months at £122.43 per month. Total repayment of £857.02. Interest: £307.02. Interest rate: 150% pa (fixed). 313.1% APR Representative.

An Instalment Loan Guide

We make it our goal at On Stride Financial to provide approved customers with personal loans that meet their needs. Our process places a premium on transparency, and our online application process was designed to be straightforward. Each one of our loans is tailor-made for the customer's needs, with variable loan amounts and loan terms.

On Stride Financial unsecured personal loans are available between £150 and £5,000. Loan durations are available from six months to three years.

What is an Installment Loan?

At its core, an instalment loan is just like any other loan — a borrowed sum of money that is repaid with interest added on top of the initial loan value. Interest rates, loan amounts and loan terms can all vary from one lender to the next, and installment loans can be either secured or unsecured. So the question becomes, how is an instalment loan different from a short-term or other type of loan?

"Instalment loans can come with a series of dates on which a repayment will be made."

There is not really a universal distinction between an installment loan or a short term loan as a short term loan may be repaid in instalments. However, many short-term loans have a single repayment date. While this may seem like a simple distinction, the truth is that having a series of payments makes it a different kind of loan.

An example of this lies in the typical length of a short-term loan versus an instalment loan. Because installment loans come with a series of repayments, they are typically repaid over a longer period of time than a short-term loan. Oftentimes, these longer loan durations are coupled with a higher loan amount and, in certain cases, a lower interest rate (note: having a lower interest rate does not mean the total cost of credit is necessarily lower). This has to do with a number of variables, including the lender, the loan type, the loan amount, and perhaps most significantly, the borrower's credit history.

Is a Mortgage an Installment Loan?

Short answer? Yes.

Long answer? Yes! As a loan that is borrowed from a lender and repaid with multiple scheduled repayments, a mortgage is most certainly a type of instalment loan. And as with any other loan type, different mortgages can come with a variety of rates and terms.

"A mortgage loan interest rate could be either fixed or variable..."

How about a Credit Card?

A lot of people think that an instalment loan is just like a credit card. While the comparison might seem logical, it isn't accurate. It's true that a credit card can be repaid in a series of payments, but this alone does not make it an installment loan.

"A line of credit provides the borrower with a set amount of credit they can borrow against."

A credit card is actually a line of credit. This means that the lender has provided a source of funding that can be borrowed from at the discretion of the borrower. Instead of a loan with a set amount of funds given to the borrower all at once, a line of credit provides the borrower with a set amount of credit they can borrow against. This line of credit will typically include a monthly repayment date, wherein the borrower can repay either a partial or the full amount they have borrowed that month, depending on the lender. Additionally, many credit cards won't charge interest if a customer makes their full repayment before or on the statement due date.

Instalment Loan FAQs

1. What are the consequences of not repaying an installment loan?

First of all, the consequences of not repaying any loan depend on your loan agreement, lender and whether or not the loan is secured or unsecured. For a secured loan, the consequences will typically be the loss of assets that have been pledged as collateral. An unsecured loan, on the other hand, can have less immediate consequences to your belongings.

Generally, not repaying an unsecured loan will result in the lender's collection department following up with the borrower. Within this window the borrower can still repay the loan, although late fees may be added to the owed repayment amount depending on the lender.

If the lender's collections department doesn't receive the funds, they may choose to sell the debt to a collection agency, who will work diligently to see that the loan is repaid.

A final consideration to bear in mind is that, should a loan go past the final repayment date without being repaid, there's a very real possibility that the lender will report the defaulted loan to a credit agency, hurting both your credit rating and credit history. If you ever find yourself in this situation, be sure to contact your lender immediately. You may find that they will offer alternative repayment dates, or work with you to find another solution.

2. How is an instalment loan different from a short term loan?

While various installment loans may share similarities, it's important to remember that with different lenders come different loan rates and terms. That said, the key difference between a short-term loan and an instalment loan is in the way that they are repaid.

Most of the time, short term loans come with one set repayment date — typically the borrower's next payday. This is the date on which the borrower will be expected to repay the full amount of the loan. Instalment loans, on the other hand, come with a set series of repayments, or "instalments." This allows the borrower to repay a smaller amount with each repayment, while the accumulated repayment still serves the lender's needs.

3. How do interest rates work for installment loans?

Interest rates are a common element of a loan, regardless of the loan type or the lender. While the rates themselves can vary dramatically, it's unlikely that you'll find a lender offering loans without them. This is because lending money must be worth a lender's time. If a lender didn't earn any money through lending, that lender would instead try to find an alternative way to invest that money and make a profit.

In the case of instalment loans, you'll find that interest rates are often lower than those found with a short-term loan. While on its face this may seem like a reason to choose an instalment loan over a short-term loan, it's important to understand exactly why an instalment loan may have a lower interest rate.

With their longer loan durations, instalment loans are suited to larger loan amounts, as it gives the borrower more time to pay off the larger amount. When a lender is considering the risk of lending, they will weigh larger loan amounts more heavily — the larger the loan, the greater the risk. And because lenders use a potential borrower's credit history to determine their likelihood of repayment, it stands to reason that for larger loan amounts, lenders will be more likely to lend to borrowers with better credit histories.

Additionally, borrowers with better credit histories tend to receive better interest rates; if there is evidence that you repay credit promptly and completely, you represent a lower risk to a lender.

So, because of the typically larger loan amounts found in installment loans, the borrowers that receive access to these funds often come with better credit histories, and in turn receive a lower interest rate. Remember, when reviewing and comparing interest rates that you pay attention to the duration of the loan because that may affect your total cost of credit.

4. How will my instalment loan interest rate change with the UK interest rate rise?

This is a good question, and depends on a key variable: whether or not the interest rate is fixed. In the case of instalment loans, where a series of repayments are agreed upon, the lender can choose to employ either a fixed or a variable interest rate.

In the case of a variable interest rate, the lender is entitled to alter the interest rate over the course of the loan, depending on the original loan agreement with the borrower. Variable interest rates are sometimes employed in the case of a mortgage loan, where the loan duration is so long that the interest rate may need to be adjusted based on the market.

For fixed interest rates, the lender and borrower agree to one interest rate, that will remain constant for each repayment amount. Standard installment loans will typically come with a fixed interest rate, allowing the borrower to know precisely what the interest on each repayment will be.

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