Short term loans

What is a short term loan?

A short term loan is a sum of money that you borrow from a lender. The loan is repaid with interest within 12 months.

They are mostly unsecured loans. This means you don't have to put up items up as security if you cannot meet your monthly repayments. They come with higher interest rates.

The borrowing amount is repaid over a few months.

The FCA is an organisation that watches over money lending. They have rules about high-cost loans. These are loans that cost a lot of money to pay back.

A high-cost loan charges 100% or more APR. You must pay it back in 12 months or less. Some people call these payday loans.

There is another type of loan called pawnbroking. With this loan, you give the shop something worth a lot of money. Then they give you cash. If you don't pay back the money, they keep your item.

More people get regular loans than pawn shop loans. But pawn shop loans can lend more money.

What is the application process for a short term loan?

The first step of the process is to make a loan application. This can be with a direct lender or through a credit broker.

The lender will assess your application. You will need to undergo a credit and affordability check before they make a decision.

If you get approved for a loan, they will give you an offer. They will give you information that tell you how much the loan costs. This includes any fees and charges you must pay.

Most short loans are paid back each monthly. Some loans might be paid back weekly or every two weeks.

If you like the offer, you must agree and sign. This is called a loan agreement. It is a legal contract between you and the lender. The agreement will tell you when to pay back the money.

The lender may require you to set up a continuous payment authority (CPA) on your debit card. This lets the lender take your monthly payments from your account.

It is important that you have enough money in your account for the repayment. If the payment fails, you may be charged a late payment fee. If you don’t make your payments on time this will impact your credit file.

The APR (annual percentage rate) can be more than 100%. It is explained as part of the representative example. This type of loan is called ‘high-cost short-term credit' but can be known as a ‘payday loan'.

Who uses short term loans?

Short term loans can be used by people with a poor or bad credit rating. They may need to borrow money quickly. They may have limited alternative credit options elsewhere.

This might be due to:

• a lack of credit history
• being new to the UK
• poor credit history
• having existing debts

Short term loans can be used as an emergency loan. For example to cover car repairs. This is when a borrower needs cash quickly.

How much can you borrow?

The maximum total amount will depend on the loan product and lender. Some people borrow as little as £50, others may take out a loan for as much as £5000.

How much you can borrow will depend on your personal situation. Each lender will have an eligibility criteria. When deciding how much to lend you, most lenders will look at:

• your income
• your credit score
• affordability
• the reason for the loan
• your financial situation
• your personal circumstances

What is the repayment term?

Repayment terms on short term loans can vary between different products and lenders.

Most short term borrowing is designed to be repaid within a few months. Other lenders may allow the loan to be repaid over one or two years.

Some high-cost short term loans can be repaid early without any fees.

If you can do this, you will reduce the total cost of your loan. This is because you will stop paying interest earlier.

Is a credit check required?

Taking out a loan from an FCA authorised lender will usually require a credit check.

A credit check is when a lender contacts a credit reference agency. These can include TransUnion, Experian or Equifax. They will look at your credit report to see your financial history.

The lenders may do a soft search on your credit file. This does not impact your credit score.

They will check you have enough money each month to make repayments.

How long will it take to receive the money?

Some direct lenders can approve your loan and pay the money into your bank account on the same day. Some claim they can transfer funds in as little as 15 minutes.

Other lenders will take longer to send you the funds. Check the timescales when you make your application to determine the right loan for you.

The time it takes for the money paid to reach your account may depend on your Bank's processing times.

Can you apply for a loan online with Afforda?

Yes. You can apply for a loan online with Afforda. We work with a panel of lenders that offer loans up to £5,000.

The online application process has been designed to be simple to use. You can complete this from your mobile phone in just a few minutes.

What are my loan options if I have bad credit?

If you have bad credit, you can still apply for a short term loan. Many loan providers specifically help people who do not have a good credit score.

Short loans may be easier to get than regular loans. This is true if you have bad credit. But short loans cost much more money. They have high fees because they are risky for lenders.

Short term loans vs Personal loans

Short term loans are more expensive than standard personal loans. Borrowers can be charged a high APR and set-up fees. They may charge late fees if repayments are not made on time.

The FCA introduced new rules for high-cost short term credit in January 2015. This makes some short term loans cheaper than they used to be.

The rules say that:

1. For all short term loans, interest rates and fees must not exceed 0.8% per day of the amount borrowed.
2. Default or late payment fees are capped at £15.
3. There is a ‘total cost cap' of 100%. This means borrowers will never pay back more in fees and interest than the amount borrowed.
4. If you take out a loan for 30 days and repay on time, you will not pay more than £24 in fees and charges per £100 borrowed.

If you get a loan you cannot pay back, you can complain. You can complain if they charged you too much money. You can contact the FOS (financial ombudsman). This group helps people with complaints about products that involve money.

The FOS will look at your case. They will decide if the lender was fair to you. They will check if the lender followed the rules.

Who provides short term loans in the UK?

Short term loans in the UK are offered by:

• lenders such as Drafty, Lending Stream, Cashfloat and QuidMarket
• pawnbrokers such as Cash Converters and H&T
• banks and building societies
• credit unions
• the government

The best short term loans depend on your situation. For example, loans from the government will only be agreed if you are on certain benefits.

Short term loans from a direct lender will be more expensive.

Do banks offer short term finance?

Some banks offer loans repayable over one to two years. Repayment terms are unlikely to be less than a year. Some loans will allow you to make overpayments or pay off your loan early.

Short term finance from banks is likely to require a higher credit score.

An alternative might be to get a credit card or overdraft from your bank.

Credit cards offer flexible repayments and can be a cheaper or more convenient option than a loan. Some offer interest-free periods of several months.

An overdraft lets you spend more money than you have in your bank account. Some banks let you do this for free up to a certain amount. But many banks charge 35% to 40% fees for overdrafts.

Overdrafts are easy to use. But ask your bank how much they will cost. Other ways to borrow money might be cheaper.

What are the advantages of borrowing money short term?

Short loans let you borrow money and pay it back fast. This can help when you have an emergency. You might need to fix your car or buy a new washing machine.

You can apply for these loans online. It is fast and easy. If you get approved, the money goes to your bank account quickly.

You can still get a short loan even if you have bad credit.

Are there any disadvantages?

Short term loans can be more expensive than other types of borrowing. If you don't repay the loan on time, or you extend the term, you'll pay even more.

Using short term loans often could result in becoming trapped in a debt spiral. This can lead to further money problems.

Failing to repay your loan will have an impact on your credit score.

Could a short term loan help your credit score?

Repaying a short term loan on time can improve your credit score. A better credit score can make it easier to borrow money in the future.

Can you apply for short term credit if you are unemployed?

You may be able to get a short term loan if you're unemployed. It will be more difficult than if you had a job. Lenders will want to be sure you can afford the repayments from your income.

If you own your home, you may be able to get a secured loan if you're unemployed. Your house would be at risk of repossession if you failed to repay the loan.

Can you get a short term loan if you are a student?

Students may get short loans too. But you must show you can pay the money back. You might have a part-time job that pays you money. This helps prove you can pay back the loan.

Some colleges and universities help their students. They give short loans when students need help fast. This might happen if your student loan is late. It may happen if you have an emergency and need money right away.

These school loans are different from regular short loans. Your school wants to help you finish your studies. They may have better rates than other lenders.

How do you use short term finance responsibly?

Short loans can help when you have an emergency. They are good if you cannot get cheaper loans from banks. But you should be careful with these loans.

Only borrow what you really need. Do not borrow extra money just because you can. Make sure you can pay back the money on time. If you cannot pay it back, you will have big problems.

Do not use short loans all the time. This is a bad habit. If you keep needing money, you need help with your finances. There are people who can help you for free.

The government might give you money to help with your bills. This is called benefits or grants. You do not have to pay this money back. Ask at your local council office if you can get help.

There are groups that help people with money problems. Citizens Advice is one group. StepChange is another group. They will not charge you money to help you.

These groups can teach you how to make a budget. A budget helps you plan how to spend your money. They can also help you understand different types of loans. This helps you pick the best loan for you.

If you are having money problems, talk to these groups first. Do not just get another loan. Getting help early can stop bigger problems later.

What happens if you cannot repay your loan?

You should contact your loan provider. You may be offered an alternative repayment plan with lower payments.

If you stop making payments, the lender is likely to charge late repayment fees. They may pass the debt to a debt collector or initiate court action. This could result in you getting a County Court Judgment (CCJ).

Missed payments will have a negative effect on your credit record. It will impact your ability to borrow money in the future.

Short Loans | What You Need to Know

Short loans can help you get money fast when you have an emergency. You might need to fix your car or pay for a trip. You can apply online and get the money the same day.

But these loans cost a lot of money. You should not use them all the time. They should only be for real emergencies.

If you cannot make your monthly payments, you may owe more and more money. The fees can keep growing. You might end up paying back much more than you borrowed. This can make your money problems worse.

For example, if you borrow £500, you might have to pay back £800 or more. That extra £300 is just fees and interest. This is why these loans are so expensive.

If you often need extra money, you should get help. The government might give you benefits to help pay your bills. You do not have to pay this money back.

You can also save money on your bills. Some phone companies give cheap plans to people with low income. Some internet companies do this too. These are called social tariffs.

Credit unions are another good choice. They are like banks but they try to help people. They give loans with lower fees than short loan companies.

If you need food, food banks can help. They give free food to people who need it. You do not have to pay anything.

Remember, it's better to get help than to keep borrowing money. The sooner you ask for help, the easier it will be to fix your money problems.