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Short term loans
What is a short-term loan?
A Short-term loan is a type of loan with a short repayment period. Loan terms vary but you’ll usually need to repay the amount borrowed within 6 to 12 months.
Short-term loans typically let you borrow between £100 and £5,000 depending on the lender, and payments are usually fixed which can make budgeting easier. This type of loan is also unsecured which means you won’t need to use an asset such as your home or car as collateral.
Why might I need a short-term loan?
Short-term loans can be useful if you need some extra cash to cover emergency bills – for example, if your boiler breaks down or you need urgent car repairs.
You’ll usually be able to apply for your loan online and you should get an instant decision. If you’re approved, the funds will often be transferred to your account the same day.
What should I look out for with short-term loans?
When searching online for short-term loans you’ll likely be pointed in the direction of payday loans. However, it’s crucial that you understand the difference between the two.
Many people use payday loans to tide them over until their next payday, but they charge excessively high rates of interest as well as fees and can be an expensive way to borrow.
Payday loans will also appear on your credit report and this can make it more difficult to get other types of credit, such as a mortgage, in the future. Lenders tend to be more reluctant to let you borrow if you’ve used a payday loan in recent years as it can suggest you’ve had problems managing your money.
In comparison, short-term loans have longer repayment periods and the amount owed can be split into fixed monthly instalments. The interest rate is generally fixed too, so you’ll know exactly how much you need to pay and by when.
How can I find the right short-term loan?
The annual percentage rate (APR) for short-term loans can be much higher than for longer-term alternatives. And, because you’re repaying your loan over a much shorter period of time, your monthly repayments can be considerably higher too.
Therefore, when comparing short-term loans, it’s important to look for the one with the lowest APR and ensure you understand exactly how much you will have to pay back each month. If you know you won’t be able to afford this amount, look at alternative borrowing options instead (see below).
Do I need a good credit score to get a short-term loan?
A good credit score will increase your chances of getting accepted for a loan at a more competitive interest rate. In comparison, borrowers with lower credit scores may have fewer options to choose from and may have to borrow a smaller sum at higher rates.
Our expert says
Short-term loans can be a quick and easy way of getting hold of extra cash in an emergency, but they can also be expensive and should generally only be used as a last resort.
If you need to borrow in this way, ensure you would be able to afford the monthly repayments and aim to pay off your loan as quickly as you can.
Rachel Wait - Personal Finance Journalist
Alternatives to Short-Term Borrowing
If you’re not sure a short-term loan is right for you, there are other short-term borrowing options to consider:
Flexible loans
Some lenders offer flexible borrowing where you can withdraw money whenever you need it and then repay the amount borrowed in monthly instalments.
This can be useful if you’re not sure how much you need to borrow, but interest rates can be higher than for personal loans.
Personal loans
You can typically repay a personal loan over one to seven years, but most lenders will allow you to repay your loan earlier if you choose to.
Early repayment charges usually apply but if you can find a lender with a lower fee, this could be an option worth exploring.
Credit cards
With a zero-interest purchase or money transfer credit card, you can avoid paying interest for a set number of months. Purchase credit cards allow you to spend directly on the card, while money transfer cards enable you to move funds from your card into your bank account.
There will usually be a money transfer fee to pay of around 4% and keep in mind if you don’t pay your balance off before the 0% deal ends, interest will be charged.
Overdrafts
Some current accounts offer zero-interest overdrafts which can come in handy if you need some extra money fast.
Even if your overdraft charges interest, you may find this still works out cheaper than taking out a loan if you can repay it quickly.
Credit unions
These are not-for-profit organisations that accumulate members’ savings and lend them out to others. Borrowing terms tend to be more flexible, but you’ll need to be part of the community to qualify.
Short Term Loan FAQs
Who qualifies for a short-term loan?
Qualifying criteria for short-term loans is generally the same as for any other type of borrowing. You will need to be at least 18 years old and a UK resident, you must have a regular income, and you will need to pass credit and affordability checks.
What information will I need to provide?
You will need to provide:
- Proof of ID, such as a passport or driving licence
- Proof of address for the past three years, such as a council tax or utility bill
- Your bank account details
- Your email address and phone number
Will a short-term loan affect my credit rating?
Yes, as with any credit application, a short-term loan will show up on your credit report. However, providing you keep up with your repayments and pay back the loan on time, your credit score should improve.
Do I need a guarantor to get a short-term loan?
Many short-term loans do not require you to have a guarantor – this is usually a friend or family member who guarantees they will repay the loan if you are unable to.
However, if you have had credit problems in the past, a guarantor could increase your chances of getting accepted for a short-term loan and you may be able to access more favourable interest rates.
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