Are Online Instalment Loans as Risky as Payday Loans?

- by Isla Williams

Recently, the government has been cracking down on the high cost short term credit industry that offer products, such as payday loans. These loans have been deemed too risky for the consumer and incredibly dangerous. Typically, this isn’t due to the cost of the initial loan. Rather, the danger comes from the charges that mount up when the loan is due to be paid back. As governments continue to push payday lenders to change their policies, a new type of loan is aggressively being marketed. The instalment loan.

Instalment loans are advertised by promoters as the safer alternative to the payday loan. But is this the case, or are these cash borrows just as risky? To answer this question, we need to find out, what is an instalment loan?

Cashfloat explain the differences and similarities between instalment loans and payday loans

Instalment Loans

An instalment loan, as the name suggests, is paid through instalments. Using an instalment loan, you will pay back the money borrowed over a fixed period. Borrowers can choose to repay in as little as a few months or as long as twenty years. However, the policies behind these loans can also vary to such a large extent, which is likely to be an issue for consumers.

Instalment loans - Cashfloat

It’s difficult to suggest which loans are bad and which are good, and we certainly can not classify all instalment loans as dangerous. The fact that mortgages are a type of instalment loan in itself is a proof that not all instalment loans should be avoided. Mortgages are paid back in instalments over a period that the homeowner can afford.

The Payday Loan

payday loans - Cashfloat

On the other hand, payday loans are intended to be paid back in one sum. When you take out a payday loan, you are using your next wage day as capital. Payday loans are not intended to be paid back over time; which is one of the reasons why the interest is so high. It is designed to encourage users to pay the loan back as quickly as possible. Or, some suspect that this is so in order that the loan is impossible to repay and the interest builds. The rate of repayment is, theoretically, different, and this seems like the fundamental difference between online instalment loans and payday loans. Nevertheless, you will soon see that there is plenty more to it.

Comparing Payday – Instalment Loans


The Dangers Of Loans Instalment Loans UK and Payday Loans

Despite the different packaging, both loan models share the same risks. Both come with high levels of interest attached to the loan. As an example, if you borrow two hundred and pay back in instalments, you can end up paying four hundred altogether. Both have late payment penalties, and both can lead to further borrowing to pay off the debt already taken on. Although you can find an FCA-authorised, moral and ethical lender who does not have hidden fees, in some cases, you should be wary of them. For payday loan companies, it’s often referencing costs. For instalment loans, it’s typically the added charge of insurance. Are there ways to avoid these dangers?

Instalment Loan Lenders

If you are borrowing an instalment loan, you may want to work with your lender to pay back the debt early. Remember, you can use an instalment loan to fix a bad credit record. You’ll be paying back the money you owe, consistently over a period of time. You should make the most of this opportunity.

Finally, remember that each lender sets their own interest rates and policies. You need to research the market and find the instalment loan lender offering the best deal. You should use a loan calculator to find out how much you will be expected to pay in total due to borrowing.

instalment loan payday loan-Cashfloat
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About The Author
Isla Williams
A born writer, Isla had her first article published at age 9 in a local magazine. Isla's joy emerges when pen strikes paper, and she can tap into her creative self. "I love to share knowledge/information and help others to be in the know while being as friendly as I can.” Isla is an accountant by profession but has taken a break to do what she enjoys most - writing.
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Cashfloat is a trading style of Western Circle Limited - Company Registration Number: 7581337. We are fully authorised and regulated by The Financial Conduct Authority. FCA full permission license: 714479. ICO Registration Number: Z3305234


* Cashfloat terms and conditions apply. Applicants must be 18 or over. All loans are subject to affordability, applicant verification and traditional credit checks via various national databases by Cashfloat responsible lending policy. In most cases, loan decisions may take up to 30 minutes during office working hours. If your bank does not support Faster Payments, funds will be sent to your account the same day as approval so long as you’re approved by 16:30.


Representative example: Borrow £900 for 7 months. 1st monthly repayment of £187.92, 5 monthly repayments of £250.56, last monthly repayment of £125.27. Total repayment £1,565.99. Interest rate p.a. (fixed) 198.72%. RAPR 529.09% Our APR includes all applicable fees. Daily interest is capped at 0.74%.


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

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