Short Term Loans
Borrow between £100 to £5000
Short Term Loans – A Complete Guide
In this guide to short term loans, we cover everything you need to know about this form of lending, starting with a definition. We recommend reading the whole guide before applying. You can use the ‘at a glance’ list below to navigate to the section you’re most interested in first.
- What is a short term loan?
- How are short term loans different to a normal loan?
- Are they more expensive than normal loans?
- What kind of rates can I get?
- How much can I borrow?
- Over how long can I borrow?
- What happens if I don’t repay on time
- Are they regulated?
- Where’s the best place to get one?
- How easy is it to get one?
- Anything else worth knowing?
What is a short term loan?
A short term loan is a borrowing typically lasting just a month, but sometimes up to 12 months. They function in a similar way to regular loans, in that you agree an amount, it’s transferred direct to your bank account and you pay interest until it’s repaid.
There are some significant differences though to more conventional borrowing methods, all of which should be understood before signing any agreement. You’ll have no shortage of options when looking to apply, as the market has grown considerably since the recession, tempered only recently by new regulations.
How are short loans different to a normal loan?
Fundamentally, they’re both a way to borrow money, at a cost, for a period of time. But there are some important differences to note:
- The interest rate will be significantly higher on short term loans
- You’ll usually need to give the lender access to your debit card for repayments
- They’re typically much easier to get than traditional bank loans
- Amounts borrowed are small compared to regular loans
- Can be accessible for those turned away by high-street banks
These loans will, by their nature, require you to pay back the loan in full, plus interest usually inside a month. Because of this, your single repayment may be quite considerable compared to a monthly repayment on a normal loan taken out over a period of years.
Are they more expensive than normal loans?
Yes. Very much so. In fact, short term loans are the most expensive form of regulated funding in the UK and there are no cheap options, aside from credit union products. They’re designed to help you in an emergency, when you simply don’t have the cash to pay a bill. They’re quick and need less evidence of your financial history. As a result the lender is taking more risk and therefore charges you higher interest.
As an example, a typical borrowing of £100 can cost you up to £122.40 over just 28 days. Contrast that to borrowing £100 on a standard card at a rate of 20% over a full 12 months, and you’d repay £120, £2.40 less.
What kind of rates can I get?
Rates vary between companies and the rate you’re offered will depend on your personal circumstances. Expect to see APRs start around 700% and head into the thousands. That said, APRs are a bit meaningless on short term loans. An APR is an Annual Percentage Rate, based on the interest accrued over a year, but that isn’t really relevant as you’ll only be borrowing over a matter of weeks.
It’s far better to understand what you’ll borrow and how much you’ll have to pay back in total, rather than the interest rate. New government regulations mean you’ll never pay back more than double what you’ve borrowed, just be sure to make your repayments on time as you don’t want to pay more than you agreed at the outset due to fees and fines.
How much can I borrow?
Typically up to £1,500, although some of the main online brands will offer loans of up to £2000. Common loans are in the mid-hundreds and you can usually borrow as little as £100. With larger amounts bear in mind you’re often borrowing over just 28 days, so the full repayment at the end of the month can be quite high. For example, on a loan of £2,000 the repayment could be up to £2,448 – that’s a lot of money to find in a just a few weeks.
As always with all loans, your individual circumstances and financial score will impact on your application and the amount you’re offered.
Over how long can I borrow?
As these types of loan are typically to help in an emergency, such as the boiler needing fixing or your car breaking down, the repayment is usually required at the end of the month or the next month. However, a lot of short term lenders have extended their terms up to three months. Some even do six and 12 month agreements, but the longer you borrow over (at the relatively high interest rates) the more you’ll pay back.
How easy is it to get one?
Short term loans are among the easiest loans to apply for and be approved for (you can even apply for some via text message). Whilst that doesn’t mean you’re guaranteed to be accepted, it does mean you can usually apply for a loan on your mobile in minutes, get approval in seconds and have the money in hours. That said, it’s much harder now to get short term loans than it used to be before the regulations were introduced, this is because of increased affordability checks.
Some lenders will let you use a guarantor and, as mentioned earlier, there are still some that will issue loans without checking whether you can afford it. Whilst this may seem advantageous, particularly to students with no financial history, it amounts to irresponsible lending. You may desperately need the money, but you may not be able to afford the repayment, landing you with even more money worries. Always use a lender that offers finance responsibly, especially if you’re on benefits or a low income.
What happens if I don’t repay on time?
As with any borrowing if you don’t repay on time you’ll be charged an instant fee. This is now capped at £15 per missed payment and the most you’ll ever pay back in interest and fees is double the amount you borrowed. Whilst this is a much better situation than pre-regulation, the damage to your financial file is still just as severe.
Missing a payment or defaulting will result in a mark on your file. This will show a missed payment and can be seen by other companies, lowering your score and your chances of being offered funding in the future.
Are they regulated?
Yes, since 2017 shortterm loans in all their forms have been regulated by the Financial Conduct Authority (FCA). The regulation covers you as a borrower and limits certain charges and loan costs, here’s a rundown:
- You’ll pay no more than 0.8% of the amount borrowed per day
- Missed payment and default fees are capped at £15 each time
- The total cost, including fees, can be no more than double what you borrowed
As well as limiting your exposure to spiraling debt, the regulations also ensure consumers can compare loans more easily. This is to let you find the best value borrowing, as well as give you a clear explanation of fees and charges on top of the borrowing.
Where’s the best place to get one?
One of the aims of introducing regulation was to aid transparency and make it easier for companies entering the market to offer competitive products. The result is a marketplace of over 50 lenders, all offering seemingly similar loan products at comparable costs.
The best short term loan for you depends on what your priority is. Some are more committed to responsible lending than others and will run a full affordability check, some won’t. Some allow early repayment without a fee, some have signed up for voluntary regulation and some offer a 90 second decision with money in your bank inside 10 minutes.
Just do your research and be clear on the total cost, as well as charges for fees and early repayment.
Anything else worth knowing?
A short term loan can have a negative effect on your financial score, even if you pay it back on time. In fact, reference agencies classify these kind of loans separate to cards and regular loans. This is especially worth thinking about if you’re planning on buying a property soon, as mortgage lenders are less likely to lend to someone who has taken out a short term loan.
It’s fair to say this form of funding has gained a less than desirable reputation since the recession, mainly due to the plethora of companies setting up without any care for responsible lending. Interest rates were at 5000% + for much of that time, until regulation arrived in 2017 capping costs and fees. As a result, today’s loan costs aren’t as high as they used to be and there are a number of lenders putting responsible lending at the centre of their products.