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It would now appear that Payday loan lending is in decline with a definite shift to the more positive alternative of an installment loan. Borrowers in need of short term credit are being urged to look at the alternatives to payday loans to make repaying the loan more affordable.
In the current economic climate, more and more people find that when a large surprise bill comes in, they find themselves having to look to obtain emergency additional funds. Unexpected bills can range from a major appliance break down, car breakdown, urgent home repairs, or extra funds for a holiday.
Previously for many borrowers,a payday loan would have been the only option which would usually need to be paid back in full in a single lump sum at your next pay date. Taking out an installment loan removes the pressure of having to repay the whole amount back in one lump sum, which can be unaffordable. In short, a 30 day payday loan can prove to be expensive and in real terms and unaffordable due to the restrictive nature of the repayment structure. Those who failed to repay on time, could see charges accumulate quickly resulting in an overall higher cost of borrowing.
Figures published by the FCA show 1.6m people taking out a total of 10 million payday loans last year, with an average of 6 loans per consumer, and an average loan size of £260.00.
In contrast, an installment loan repayments can be spread over a number of months evenly over the term of the loan. .The installment loan allows more manageable streamlining of repayments and usually a lower APR! Consumers are able to make an informed decision on their preferred monthly or weekly repayment amount.
Installment loans are proving to be the middle ground option usually offering a loan amount larger than a Payday loan but for smaller loan amounts that are offered by banks, building societies and other high street lenders. Borrowers can then make a smaller monthly repayment which they can comfortably afford and budget for, allowing the consumer to borrow money and pay it back putting them at a far lower risk of defaulting on payments. This may prevent the consumer falling into arrears and gives them a definite end to their repayment schedule.
A major benefit of an installment loan is that the lender reports the borrower’s repayment history to a credit reference agency which may help build their credit rating should payments be made on time. Consumers should be encouraged to confirm that the lender reports to a credit reference bureau in order to ensure they are able to enjoy this benefit.
2nd March 2015
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