Instalment

Meaning and Definition

An instalment refers to a regular and predetermined payment made by a borrower to a lender to repay a loan or finance agreement. In the context of car finance, it typically refers to the monthly payment made by the borrower to repay the loan amount, including interest, over a specific period.

Why it is important to know

Understanding instalments is crucial for borrowers as it helps them plan and budget for their car finance payments. By knowing the amount and frequency of the instalments, borrowers can assess their affordability and ensure they have sufficient funds to meet their repayment obligations. Instalments are calculated based on the loan amount, interest rate, and loan term, and borrowers should consider these factors when determining their repayment ability.

Example

If a borrower takes out a car loan for £10,000 with a repayment term of 48 months and an interest rate of 5%, they would have to make monthly instalments to repay the loan. The instalment amount, in this case, would be approximately £233.60. This amount includes both the principal and interest and remains consistent throughout the loan term.