Installment loans are a relatively new addition to the online short term loans marketplace. This is because for many years a different type of small loan dominated the market and was the go-to choice among-st consumers. As many of us will be aware this product was that of the payday loan. The payday loan until installment loans is a much more restricted method of borrowing a small sum of money and hence the reason for many modern-day consumers preferring the services offered by installment loans lenders. The transition from lenders offering purely payday loan products to installment loans took place when the market as a whole began to change. The introduction of the FCA (financial Conduct Authority) signalled a change in direct and approach for lenders of these short term borrowing choices and this was thanks to the work and research conducted by the FCA. The FCA set about the task of improving the entire market in which short term borrowing took place. Specifically these loans were defined as ‘short term, high cost’ borrowing options. Where for a decade before that time payday loans had dominated the market in terms of product offering, the FCA through their research recognised that for many consumers the payday model had become dated. Not only was the payday model considered to be dated but in reality it was also restricted and unable to support the true needs of short term borrowers. This was due to the fact that payday loans, unlike installment loans, were due for repayment in a single and one-off repayment. This meant when applying for such a loan the customer would agree to repay the entire loan and the interest charged by the lender as a one-off lump sum; often due to lack of alternative repayment options.
All of the above meant that many consumers applied for and were approved payday loans when realistically, they did not have the means to repay the commitment later due. The FCA recognised this fact and set out establishing new guidelines as well as rules which would guide lenders to offering more affordable and customer focused borrowing choices. The end result was the birth of installment loans. Installment loans in a generally sense have been much better received by customers and the FCA alike. Instead of asking that the customer commit to what was often a sizable sum of money on their next employment pay date, installment loans give customers choice and flexibility. This is thanks to their range of repayment terms and options which are presented to the customer at the point of applying. This means there are borrowing choices which allow for a whole host of different repayment terms. Whether this means 3 monthly repayments or 5, 6 or even 8 months’ worth of repayment for example. The key point here is that at the point of applying customers considering installment loans have the freedom to select a repayment term and therefore payment which is sensible and realistic to their individual financial circumstances.
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