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Most loans are designed to be paid off over a number of years: mortgages last up to 25 or even 35 years, car loans run between 24 and 84 months, and personal loans are paid off over one to five years.
But if you need a small infusion of cash in the short term, to help you deal with an emergency or unforeseen situation, a short term loan may help you if you do not have other lines of credit open to you. These products allow you to borrow between £100 and £1,000 or occasionally £3,000 and pay it back over 30 days or over four or up to 12 months.
Short term loans are those which are paid back within a short time period—often 30 days but up to several months and occasionally a year. Because they’re designed to help you meet expenses in a pinch, they deliver smaller amounts of money than other personal loans, often between £100 and £1,000.
Because short term loans can be expensive, you should strive to compare as many quotes as possible, to find loans with the lowest interest rates and fees.
Our loan comparison engine, powered by Monevo, can help you obtain multiple loan offers with a single application, with one single application. Simply enter details about yourself, including your monthly income and outgoing expenses, and you’ll receive a list of personalised loan offers from a range of reputable lenders which you can choose from, subject to lender criteria.
You might be seeking a short term loan because you have a spotty financial past, a history of missed payments and defaults. If you have a poor credit rating, you’re more likely to be approved for a short term loan than for other types of finance, including credit cards and other flavours of personal loans. But even the search for a loan can impact your credit score. If you file applications with a range of lenders, they may run hard checks on your credit, which leave a trace on your credit report. A flurry of checks from short term or payday lenders can raise red flags for other lenders.
We help you avoid harming your credit file by conducting a soft check on your credit instead. This won’t leave a trace on your credit report.
When you select a loan, the lender will typically run a hard credit check on you. And just one single hard check from a short term lender can look suspicious to other lenders, such as mortgage companies. They might see the use of a payday loan as a sign you can’t manage your finances properly and are forced to resort to last-minute, expensive borrowing. They may then be reluctant to extend larger sums of money to you.
Additionally, when comparing payday loans, you’ll likely see APRs in the thousands. But you thought the total cost of a loan was capped to double the borrowed amount, right? Those terrifying APRs are because most of these loans are designed to be paid back over 30 days or a few months. APR is a representation of the annual cost of borrowing with that loan. Payday loans are expensive, but not loan shark expensive—unless you don’t make the repayments.
Find out which loans you could be eligible to take out, without affecting your credit score
‘Short-term loan’ is generally understood to be synonymous with ‘payday loan,’ although there are other types of short-term borrowing.
Payday loans justly have a dubious reputation: interest rates can be astronomical (although legislation has capped them recently) and defaulting is common, leading to spiraling debt and damaged credit. Although it’s usually easy to apply and be approved for these loans—you can even do so via an app and have the money sent to you within minutes—they should be used with caution and as a last resort. But handled with care and paid off consistently, they can be useful for some borrowers.
If you do decide to take out a short term loan, try to compare as many loan offers as possible, from reputable lenders, to ensure you find the best deal available to you.
With the high interest rates on these loans, even small amounts can escalate quickly. However, under regulation introduced in 2015, the total amount you can be charged for a short-term loan, including interest and fees, is limited to double the value of the loan. So short-term loans are less exorbitant and scary than they used to be, but they can still be eye-wateringly expensive. Borrowing £100 can cost you up to £200 and borrowing £1,000 can cost £2,000. And that’s provided you pay it all back on time.
Fortunately, regulation protects those who default. The amount lenders can charge you for defaulting on a short term loan is currently capped at £15. And then for every day the loan continues, you can’t be charged more than the maximum interest rate of 0.8% a day—that’s 80p a day for every £100 owed.
But despite these limits, short-term loans are among the most expensive ways to borrow, with rates that exceed other options like credit cards, bank overdrafts, and other types of personal loans. So why choose them?
Most people are drawn in by the convenience. It’s easy to apply for short term loans and if you have poor credit, you’re more likely to be accepted for these than for other types of finance.
You’ll usually receive a quick approval and then the funds swiftly as well—sometimes even within the hour and usually the same day.
These loans are usually unsecured, meaning you won’t have to put your property on the line as collateral.
the most common type of secured loan, with your home as collateral. The amount you can borrow will depend on the amount of equity you have in the home.
Once you’ve completed an application and been approved in principle, you’ll be visited at your home by an agent, who will conduct an affordability assessment with you. If you’re accepted, they’ll give you the money in cash and you’ll need to make the payments in cash too.
The application and loan approval process for these loans is all done online, and the money is delivered to your account quickly, sometimes even within minutes of being approved.
Payday loans are technically just one type of short term lending. But given the bad reputation of payday loans, some lenders have ditched the payday handle and started selling exclusively ‘short term’ loans. So yes, many short term loans you’re comparing could be classified as payday loans
Just the presence of a short term loan on a credit history, even if it’s paid off on time, can raise the suspicion of other lenders, including banks and building societies. A short term loan suggests to these lenders that you have trouble budgeting and managing money, casting doubt on your ability to make monthly mortgage payments.
Some lenders will ask you to pay using something called continuous payment authority (CPA), or recurrent payment. This gives the lender the right to take your repayment on the loan directly from your account (you’ll need to supply them with the 16 digit number on the front of your card). Regulation means that lenders are only able to attempt collection twice, but if they’re automatically drawing money out of your account, they could be causing you to default on other bills. If you’re concerned, you can cancel CPAs by asking the bank which holds your account and then arrange with the lender to make payments on the loan without a CPA.
*If a lender has pre-approved for a loan product this means they have conducted a soft search of your credit file and there is a good chance they will lend to you. Pre-approval does not guarantee you a loan. All loans are subject to lender and provider requirements and approval.