If you are interested in taking out a short-term loan, many of the guides you find on websites and online news articles can be difficult to understand. If you don’t know about all the different options that are available to you and what makes each of these options different from one another, then you’re less likely to find the loan to suits you.
That’s why, in this article, LoanTube team will explain what a short-term loan is, why you might want to consider getting one, and how to go about doing it.
What is a Short-term Loan?
A short-term loan is a specific kind of finance that is taken out over a period of less than 12 months. There are also “payday loans” and with these loans, you receive the money and then pay it back the next time you get paid. Most loan providers who offer payday loans also offer short-term loans and vice versa.
Why Would you Take out a Short-term Loan?
Two of the most common reasons that people take out a short-term loan are:
You might need money to cover an unforeseen emergency
This could include anything from your car breaking down to purchasing plane tickets to visiting an unwell family member. Payday loans and short-term loans allow you to pay for whatever you need to pay right now and then repay the money back either on the day you next get paid or over a longer period of time.
You may want to make a major purchase
Saving up to buy a car can be difficult because of the amount of money you need. In these cases, a short-term loan will allow you to buy the car you need and spread the costs over an extended period.
Other reasons borrowers apply for payday loans include covering funeral expenses or medical bills.
What Makes One Lender Different from the other?
There are many factors that can be different when it comes to loans. These are:
The amount of money you can borrow
Each lender will have a different limit on the amount you can borrow. Additionally, lenders might have different amounts available depending on the number of times that you have dealt with them in the past. For example, a first-time borrower might be able to take out £500 whereas somebody who has already taken out and paid off a loan with a lender might be offered a £1,000 loan.
How long you can borrow the money for
This can vary from anywhere between one month and a year. Some lenders may even go up to 18 months but this isn’t the case for every loan provider.
The interest Rate
This is the amount of money that you will have to pay back on top of the amount you have borrowed. You’ll normally find that you’ll pay more interest on a loan if you’ve got a lower credit score. This is because a lender needs to make sure that they can cover their costs in case some borrowers can’t make their payments. The higher interest rate reflects the risk a lender believes they’re taking if you have a lower credit score. You can read more about credit scores here.
How the Repayments Work
You will make an agreement with the loan provider about how much you will pay back each month. The repayments will cover both the amount that you have borrowed as well as the interest that is added on.
Each month you pay back this amount until the debt is cleared. If you make all your payments on time and you pay off the full amount, this will be reflected positively in your credit score. This means that it will be easier to be approved for another loan later from the same lender, should you need another in the future.
What if you Can’t Repay the Loan?
This is called “falling into arrears”. It means that you aren’t able to make your repayments on the days you agreed when you took out the loan. If this happens, then you may be charged a default fee (capped at £15). You should work with your lender to get your repayments back on track so that it doesn’t damage your credit rating too much. If you fall behind on repayments and can’t pay the remainder of what you owe at all, this will make finding a lender to approve a loan for you in the future much more difficult.
What is the Financial Conduct Authority?
The Financial Conduct Authority (FCA) is the regulatory body for payday and short-term loan providers. Please make sure that you only deal with FCA authorised lenders. This is because the FCA guarantees you consumer rights that all of their authorised lenders have to uphold.
The extra protection you enjoy when borrowing from an FCA-authorised lender includes:
- you must not be charged over 100% of the price of your original loan in interest and fees
- late payment fees cannot be more than £15
- you cannot be charged an interest rate of over 0.8% a day
The Likelihood of your Application Being Accepted
You are more likely to be accepted for a short-term loan if you can prove that:
- you are in full-time permanent employment
- that there is enough left in your bank account every month to make a repayment after you’ve paid for everything else (mortgage/rent/utilities and so on), and
- you have not missed any payments recently that have been recorded in your credit file
What you Need to Know About Making a Loan Application Through LoanTube
LoanTube is different. We try to bring you the cheapest possible rates that are available amongst our partner lenders. Although we cannot guarantee that we will find you a lender, but you really do have better chances of finding a suitable loan with us because we work with multiple lenders.
How does it work? Our clever computer system compares real-time offers made directly by the lenders. This is all done in real-time and, once we have all the quotes, we will display the offers with their terms and conditions to you, as the same will help you take an informed decision.
To start your application, please click here.