Instalment loans are the new form of short term loans it has been said. Unlike the payday loan, instalment loans give consumers a better selection of choice when it comes to their repayment needs. Instalment loans take the fundamentals of the payday loan and then extend the overall service available to customers of the product, by allowing repayments to be made over a number of pre-agreed monthly instalments. It is for this reason that consumers are steadily returning to the online market for borrowing a small sum. Instalment loans have, in some ways, bridged the gap that for a long time had been forming in the short term loans market place as a whole. For many years it was solely the payday loan which dominated this market and that meant consumers who were looking to borrow only a small sum of money were somewhat limited in the repayment options at their disposal. This fact was not only noticed by the consumers themselves but also the governing body responsible for the actions of short term loans lenders.
For several years now instalment loans and payday loans alike have been under the management of the Financial Conduct Authority (FCA). The FCA was brought into power in an effort to ensure consumers were being treated fairly and with consideration when it came to their short term borrowing needs. After many years of trading it had become increasingly obvious that the payday loan in its simplest form, was no longer able to meet the majority of its customers’ needs. Instead when borrowing in the manner of that of a payday loan, consumers were given only the option to repay their loan as a lump sum repayment on their next employment pay date. This meant that many consumers were agreeing to a financial commitment which was, in reality, simply not realistic or affordable.
The introduction of instalment loans was a direct result of the FCA’s empowerment and subsequent research into how the market operated. When it became clear that consumers of such loans were not being offered flexible and varied repayment terms, the FCA brought into place new rules and requirements to amend this. As such all existing lenders later had to apply to the FCA to have their product and service approved, if they wished to continue trading. Those lenders who did not meet the requirements of the FCA were no longer able to exist within the online market place for short term borrowing. The end result is the market which exists today and therefore has lenders who are FCA approved. In order to ensure that customers are treated fairly and have sensible borrowing options at their disposal, instalment loans are widely offered. Instead of limiting customers to a single repayment term, instalment loans give the ability to make monthly instalments at a lower amount but over an extended period of repayment. Many consumers are more comfortable with this type of borrowing because the monthly instalments are better able to exist alongside their everyday and ‘normal’ living costs.