Even if you’re a pro-money-manager, unplanned expenses like car repair or plumbing issues can agitate your budget. Such unaccounted expenditures can be difficult to cope with. Besides, the financial turmoil caused by the pandemic has made it even tougher to make it through.
Short term loans can help you keep your head over the water during a minor financial crunch. With a short term loan, you can split the cost of your purchase into easy and affordable monthly instalments over a short span. Read on to learn more about how short term loans actually work.
What are short term loans?
Short term loans or high-cost short-term personal loans are a form of credit that helps you cater to unplanned or urgent expenses. People usually pay off a short term loan within 12 months.
Short term loans usually come at higher interest rates than typical high-street unsecured loans. But just how high this interest is set depends on your credit score and affordability. You may be able to qualify for competitive interest rates with a strong credit history. On the other hand, borrowers with a low credit score may struggle to qualify for lower interest rates and better loan terms. Despite the high-interest rates, short term loans remain a popular choice among low credit borrowers looking for financial aid.
Timely repayments are crucial to your credit history. Short-term loans can be a good opportunity to improve your credit score. As long as you make timely payments each month, your credit score will improve over time. Failed repayments can gravely damage your credit score.
Moreover, if you consistently miss payments, the lender may get a County Court Judgement (CCJ) issued against you. A CCJ can stay on your credit report for six years. This could hamper your chances of securing credit for future life goals and financial milestones. Therefore, it would be wise to have a repayment plan before the beginning of your repayment period.
Since these loans are borrowed over a shorter span, the processing and disbursal are usually speedy. Most lenders would wire transfer the money into your bank account within a few days.
LoanTube is an FCA-licensed loan broker in the UK. With a panel of some of the UK’s leading FCA-approved lenders, LoanTube can help you find a suitable loan offer, even with bad credit. Fill a quick online application form and compare multiple loan offers to find your ideal loan.
Where can I borrow short term loans (UK)?
- High-street banks
- Online lenders
- Online brokers such as LoanTube
- Building societies
- Credit unions
- Dedicated lenders
- Secured loan providers
- Government grants or schemes
What can I use short term loans for?
People use small loans for a variety of purposes, some of which are listed below:
- Minor home improvements
- Repair works – vehicle or home
- Debt consolidation
- Emergency medical bills
- Wedding expenses
- Purchase of a new appliance
- Purchase of business equipment
- Regulating operational costs of a business
Should I borrow short term payday loans?
Payday loans fall under the umbrella of high-cost short-term credit. You can use these loans as a cash advance to cover some unplanned expenses or tide over to the next month. Most people pay off payday loans within a week or a month. Since payday loans charge excessive interest, with an average APR exceeding 400%, it is best to pay off these loans as soon as possible.
Initially, payday loans were not regulated by the FCA. But after the exponential rise in the number of payday borrowers and, consequently, consumer complaints, the FCA intervened. Payday loans now have a price cap on interest rates and additional charges to safeguard the borrowers’ interest.
For every £100 borrowed, the lender cannot charge more than £24 for a loan borrowed over a 30-day term. If you fail to keep up with your repayment schedule, the lender cannot impose a penalty of more than £15 plus the interest on the amount borrowed. The price cap also ensures that you don’t end up paying more than twice you’re the borrowed amount to your payday lender. This way, the FCA ensures that borrowers don’t get exploited by marketing gimmicks while borrowing credit.
How to apply for cheap short term loans?
Find your ideal loan offer in 5 easy-to-follow steps:
- Figure out a loan amount: Assess your income and expenses to work out the right loan amount. Try to borrow an amount that you can afford to repay in the foreseeable future, despite contingencies.
- Check your credit rating: Ideally, you should check your credit score regularly. Not only will you know what sort of loan offers to expect, but you will also be able to dispute mistakes in your credit report. Witnessing improvements in your credit score will help you stay motivated.
- Complete the online application: LoanTube provides a seamless loan comparison experience to customers. Compare multiple loan offers with actual interest rates just at the click of a button. All you need to do is fill out a quick application form. Ensure that you file your application meticulously, with the accurate, latest information.
- Complete the lender’s agreement: Once you choose an offer, the lender carries out a formal credit check to assess your creditworthiness. If approved, the next step is to complete contractual formalities with your lender, and soon after, they will disburse the money into your account via a wire transfer.
- Prepare a repayment plan: After you receive the funds in your account, you are free to use them at your discretion, albeit responsibly. Preparing a repayment plan before the beginning of your repayment period can help you manage the costs more efficiently. Having a contingency plan will help you tackle unprecedented situations.
6 tips to borrow the best short term loans
Check out these five super tips to help you apply for short term loans:
- Watch out for loan sharks – Loan sharks offer enticing loan deals which are often entwined with unreasonable additional costs and interest rates. Besides, they may not be FCA authorised.
- Rectify erroneous records in your credit report – Before applying for a loan, scrupulously check your credit report for erroneous entries or unidentified enquiries. If you find some, dispute them to give your credit score a boost.
- Stick to just what you need – Carefully evaluate your income and expenses. Borrow just what you need and can afford to repay. Don’t over-borrow just because you can qualify for a bigger loan amount.
- Check the overall cost of your loan – Determine the overall cost of a loan before concluding. It is important to choose an offer with the lowest interest. But do check which offer comes with the lowest APR.
- Make a repayment plan – It is important to have some clarity about your repayment plan before borrowing a loan. It will help you align your monthly expenses with the loan’s repayments to ensure timely payments.
- Set up a Direct Debit – Direct debit is a great way to ensure timely payments. Check with your bank to set up a direct debit arrangement for your monthly payments.
Short-term loans are a quick solution to an unprecedented personal financial dip, albeit at high-interest rates. Like any other credit, it is imperative that you handle your short-term loan responsibly and make timely repayments to avoid damages to your credit rating.