Installment Loans – How UK Long Term Loans Work

Long-term loans can be the most convenient solution when you need to borrow money for reasons as diverse as debt consolidation or funding home improvements. These personal loans give you the flexibility to specify how much you want to borrow although they are usually for £5,000-£50,000. For most borrowers, the loan term ranges from 2-7 years. However, this primarily depends on the sum borrowed and the affordability of the monthly payments.

Also known as installment loans, these loans might be secured or unsecured. Although a secured loan allows you to borrow more money and at lower interest rates, you would have to put up some collateral as a guarantee which is often your home. The most common, however, are unsecured long-term loans with no guarantor. The term “installment loan” can apply to any kinf of personal loan where the repayments are made in installments.

Long-term loans are usually for borrowing amounts between £5,000-£50,000

Another way that long-term loans vary is that they might be fixed rate or variable. The monthly instalments of fixed-rate personal loans remain the same whatever happens to the lender’s interest rate. This allows you to budget more effectively although the fixed interest rate you are offered might be higher than the variable interest.

What are the pros and cons of installment loans?

The main benefits of long term loans are that they:

  • Are flexible enough to be tailormade for your financial circumstances.
  • Have better interest rates than short term loans.
  • Easy to budget for if they have a fixed repayment plan.

The drawbacks of installment loans are that they:

  • Might have early repayment fees if you pay off the loan early.
  • Might have additional charges for late and/or missed payments.
  • Could lead to your home being repossessed if you have a secured loan.

In order to avoid the worst-case scenarios, it is extremely important that you always read the terms and conditions of the personal loan before signing on the dotted line. Your lender will be more than happy to explain any points that you don’t understand.

A couple are discussing the terms of their instalment loan

It is also a good idea to arrange for your long term loan instalments to be paid by direct debit. In this way, you won’t accidentally be late in making your loan payments and end up incurring additional charges.

Finding long term and installment loans from UK direct lenders

You can take out installment loans directly from most high street lenders such as banks, building societies as well as credit unions. Your loan application can be made in person, by phone or online although you may have to hold an account with the lender to apply online. Some UK financial institutions only offer long term loans online.

Comparison sites are a good way to see what is available on the market before making a loan application. It is a good idea to use at least 2 different websites so you get a better picture of all lenders in the marketplace. You should always check that the lender is regulated by the FCA (Financial Conduct Authority).

Comparison sites are a good way to see what is available on the market before making a loan application.

When using such sites, remember that the APR advertised by the lender only has to be given to 51% of borrowers. It might be higher for you depending on factors such as your past financial history, the loan amount and the loan term.

Installment loans questions:

What are long term or installment loans?

A long term loan, or installment loan, is a type of debt that can be paid off over an extended period, which typically exceeds one year. Most lenders offer long term loans with a duration of 2-7 years. A long term loan can provide a business with capital to acquire assets, inventory, or equipment that can help to generate further income for the business.

What are the benefits of a long term loan?

Long term loans offer several advantages compared to short term personal loans. A primary advantage is the immediate increase in cash flow, which can act as investment capital for a business operations or expansion. Crucially, long term loans offer lower interest rates compared to short term loans. By taking out a long term loan, a business owner would also find themselves free from investor interference. Finally, if the long term loans repayments are made on time, this would provide an opportunity to build up one’s credit score.

What are some disadvantages of taking a longer loan?

Taking out a long term loan can present certain disadvantages, especially when considering the needs of a small business. Loan repayments over an extended period can stifle the growth of a business. Having taken out a long term loan, the collateral risks must also be taken into account, as the business may face certain vulnerabilities that restrict its ability to produce enough income to make loan repayments. Overall, it is crucial to take out the loan that you need in order to avoid being restricted with future repayments.

Applying for long term loans

Before granting you a long term or installment loan, the lender has to carry out a credit check with one or more credit reference agencies. Any hard search on your credit file will have an impact on your credit rating so it’s a good idea to use the lender’s online affordability tool beforehand. This, of course, carries no guarantee that your loan application will be accepted, but it will give you an idea of whether it’s worth applying.

A financial adviser explains the long term loan application process to an elderly couple

As well as investigating your credit score, the lender will conduct an affordability check. This is stipulated by the FCA to ensure that borrowers don’t get into financial difficulties with unaffordable loan repayments. This check takes into account your income and your monthly expenses including the costs of any other financial products you have such as credit cards.

Are there long term loans for bad credit?

If you’re struggling to cope with your financial commitments (such as revolving debt like credit card payments), you may decide to consolidate your debts by taking out a personal loan for bad credit. This is convenient since the APR on a personal loan is much lower and it allows you to keep better track of when the single loan payment is due. However, you should bear in mind that although the monthly instalments will be more affordable, you may find that you’re extending the loan term. As a result, you may end up repaying more interest in the long run.

If you have a poor credit rating, it is possible to take out a long term or installment loan although you may find that you have fewer choices in lender. Also, as your past credit history shows that you have a higher risk of defaulting on the loan, you might find that you have to pay a significantly higher APR than someone with a better credit score. The alternative is to borrow from an online bad credit direct lender. You can read more about those here.


Click here to post a comment

Jump To A Category

Quick Read: Money Magazine