There are many different types of loans out there and most will have a repayment schedule where you pay back the money owed over a selection of months. However, there are some loans where you pay back everything that you owe in one lump sum. There are advantages and disadvantages of both types and it is good to know more about them so that you can choose which will be the right option for you.

Advantages of Instalment Loans

An instalment loan refers to any loan where you will need to repay in instalments. This means that you will need to repay part of the loan and fees every month for a selection of months. The amount of repayments will depend on the amount of money that you have borrowed. The good thing about these loans is that the repayments are spread rather than being just one lump sum. This means that it will be easier for you to afford the repayments. You will not have to come up with all of the money at one go.

Some loans have just one repayment and although that means that they will be paid back very quickly, it means that you somehow have to find that big chunk of money all in one go. Then, once you have made this repayment, you have to manage until you are next paid on a lot less money than you would normally have to. This can sometimes lead to a person needing a second loan so that they can manage and then this could lead to a whole spiral of debt. But by spreading out the payments, there is a much lower chance that this will happen.

Disadvantages of Instalment Loans

Having an instalment loan compared to a lump sum repayment type will mean that the loan will hang around for longer. Rather than paying it off within a few weeks, it will take months to repay it. This could be a cause of stress as knowing that you owe money can be stressful. However, compared to the stress of having to find enough money to pay off a lump sum it could be less. Knowing that you will be able to more easily manage month to month and that you have time to think of different ways to free up enough money to pay the instalment could be useful too.

Often you will end up paying more money if you owe money for longer. This means that paying in instalments could be a more expensive option. This could sound really bad, as obviously it is better to find the cheapest loan I you can. However, if you cannot afford to make the repayment because it is such a large lump sum, then you will end up having to pay late repayment fees. These are likely to be much more expensive than the increase in cost of an instalment loan compared to a lump sum one. Therefore it could be well worth paying that bit extra.


So whether you are better to take out an instalment loan or one which has a lump sum payment will depend on your own personal circumstance. You will need to think about whether you will be able to manage a lump sum or whether it will be a lot easier for you to repay in smaller amounts. This will depend on your income and how much you have left at the end of each month as well as how much money you have borrowed. It could be more expensive to repay over a longer term, but if it means that you avoid late repayment fees and you have more money to manage for the rest of the month, it could be worth it. Also if you compare loans and take out the one that is the cheapest, it will mean that you will not be paying more than you have to.

It can be tempting to rush into getting a loan, particularly if you need the money in a hurry. However, there are a lot of advantages to taking some time to consider which loan will be the best for you as well as which will be the cheapest, will be of a lot of benefit to you. You could not only save a lot of money but you could also save yourself a lot of stress as well. So it can be worth just spending a little time doing some research as it could really pay off.