Is a Payday Loan, with just one Repayment Easier to Manage then Multiple Repayments?


Most payday loans have just one required repayment but there are now some payday loans where you are able to repay in several instalments. There are also alternative loans that you can repay in instalments. It is good to think about whether paying everything off in a lump sum will be better for you than paying in instalments or whether it would be better for you to pay in instalment. It is worth considering whether it will make a significant difference or not.

Advantages of one repayment

It can be really great to know that you only have one repayment to make on money that you have borrowed. This is a common repayment method on short term loans or those catering for people with bad credit. You will be able to get the loan repaid really quickly as you have to do it all in one go. If you are the type of person that worries about having debt hanging around then this could really suit you as the debt will soon be gone. It could be repaid within a month and then you will no longer have the concern that the debt brings and you will be able to forget all about it.

You might also find it difficult to manage your money for long so if you just have to do it until you make the one repayment then it could be easier for you. You will need to restrict your spending for a while as you will need to be sure that you have enough to make the repayment and then cover all of your other expenses for that particular month or until you next have some money come in. However, it can be easier for some people to do this for just a short amount of time compared with having to it over a longer time period even if it is to a lesser extent.

Advantages of instalments

If you pay in instalments it means that you do not have to find all of the money at once. It can be tricky, even if you only repaying a small amount, if you have to repay it all in one go. It can mean that you struggle financially for the rest of the month and find it really hard to manage. You may even find that you need to borrow more money to manage to get you through.

However, if you are paying back smaller amounts then you will not have to worry so much about managing those repayments. You will be able to more easily manage as you will not be paying out such a large amount in one go. Obviously, you will still need to make sure that you have got enough to cover those repayments and that you do not spend too much on other things. However, if you tend to have a bot extra each month or have some areas where you can reduce your spending for a little while, then you should be able to manage it.

Making the choice

In order to make choice you need to be aware of your own personal situation. You need to think about whether you will be able to afford the singular repayment or whether having smaller payments will be more helpful. Look at past bank statements and think about whether you would have been able to manage a large repayment. Calculate how much you would need and think about how you would find that money. If you feel that you would not be able to manage it, then it would make sense to go for instalments.

You may still be in a bit of a quandary as instalments tend to be more expensive than one lump sum payment. This is because you will be borrowing the money for longer. However, if you do not manage to make the repayment, then you will get extra fees added on to your loan and you will end up paying more anyway. If you repay the loan but then need to borrow again before you next get paid, then again you will end up paying more money. Therefore, it can work out cheaper to pay by instalments compared with the costs that may come about by not managing to repay the lump sum or having to borrow as a result of repaying it.

It is therefore a decision that you will have to make with your current finances in mind. Consider how well you normally manage your money and actually look at the figures to see whether you would be able to cope with paying a lump sum. It might be that you will be able to reduce your spending in other areas so that you can afford it but you will need to identify those areas and commit to reducing spending in those areas so that you can be sure that you will be able to manage.

Is it Better to get a Fixed Rate Loan?

If you are considering getting a loan then you will see that you can choose from a fixed rate as well as a variable rate loan. Some specific types of loans will only have the one option but larger loans such as mortgages, tend to have a choice of options that you are able to choose between. There are advantages and disadvantages of both and it is a good idea to understand what the differences are between the types of loans in order that you can choose the one that is best suited to you.

Fixed rate vs variable

A fixed rate loan is one where you pay a fixed interest rate. In the case of a long-term loan, such as a mortgage then the fixed rate period will not be for the full term of the loan but for a shorter period, perhaps a few years. It means for that period of time your interest rate will not be changed and so you will be repaying the same amount of money each month. For shorter term loans it could be for the whole term of the loan that the interest rate is fixed. With a variable rate the interest rate that you pay can change at the will of the lender. This can often be in response to a rate change by the Bank of England but not always. When rates fall, lenders do not always lower their rates in line with that, but if a majority do, then others tend to be forced to do so in order to remain competitive. Sometimes they may put rates up when there has not be a Bank of England rise for a while in order to increase their profits and if one lender does it, others may do the same. They are much more likely though, to follow the Bank of England changes.

Pros and Cons

Many of the people that have a fixed rate like it because it means that they know exactly how much they will be paying each month. This is particularly useful for those that struggle to make the repayments as they are able to know that these repayments will not suddenly go up and become even less affordable. However, it does mean that if rates fall, they will not see a fall in their interest rate and the risk of losing out like this, can be the reason that some people opt for a variable rate. A fixed rate can also often be more expensive than the variable rate. This could be offset if the variable rate goes up and the fixed rate obviously will not. It can be tricky though to predict what the rates might do and so choosing which might end up being the cheapest can be almost impossible. It is worth bearing in mind though that with a fixed rate, you might be tied in to it, so if the variable rates are suddenly significantly cheaper, you will not be able to switch to the variable rate.

How to Choose

It can therefore be quite difficult to make a choice. You will need to think about things in light of your current situation. Consider whether you need to know that you will be paying the same amount each month. If you feel that you could struggle to afford repayments if they go up, then having this peace of mind can be really good. However, you might find that you would rather not pay extra for your repayments and hope that the variable rate does not go up too much so that you save money by sticking with that. If you do not like the idea of being tied in to a lender then this could be the better option for you anyway as it will allow you to switch. It does means that if the rates go up too high you could swap, although it is likely that if these rates go up, that all rates will go up.

It is a tricky decision and you may like to consult with an independent financial advisor on it, to see what they feel would be the best. However, the ultimate decision will be yours and so it will be up to you to think about whether you like the idea of the security of a fixed deal or whether you would rather be flexible and whether you are willing to risk interest rates changing significantly and you missing out or being protected from those. You may also prefer the idea of being able to switch lenders easily rather than being tied to just one. However, you might decide that once you have found a lender you will not be switching anyway and so being tied in to a lender may not make any significant difference.