If you’re looking to arrange short term funding, then this can come in a range of shapes and sizes. However, the specific short term loan type that you opt for will ultimately depend on two key factors – how long you need to borrow the money for, and how much you need to borrow. For example, if you’re happy to spread the payments out over the course of 1 year, then your best option is likely to be a personal loan – not least because the APR rates are likely to be more favourable.
However, if you only need a small amount of money, then you might need to go with a more expensive payday loan. Either way, we will cover everything that you need to know in our Short Term Loan guide. Within it, we’ll explain what a short term loan actually is, how they work, the different options available, how much you’ll typically pay, and more.
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What are the Pros and Cons of Short Term Loans?
Reviewer’s choice of best short term loan providers
The short term loan space is now jam-packed with loan providers, with thousands of lenders now offering loans of all shapes and sizes. As great as consumer choice can be, this can also make it somewhat difficult to know which lender to go with. As such, we have listed the best three short term loan providers below. Before we do, be sure to read through the strict set of criteria that we implement before listing a loan provider on our site.
How to Apply for a Short Term Loan? Read our Step-by-step Guide:
If you’ve never applied for a short term loan before, we’ve listed the key steps that you will need to take below. Be sure to read through these thoroughly before proceeding with your application!
Step 1: Decide what type of loan you want
Your first port of call will be to decide what sort of loan package you need. This should cover the size of the loan that you require, and how long you need to pay it back. Once you have assessed the fundamentals, you will then need to find a trusted lender that can facilitate your loan. To help you along the way, we have listed the best 3 short term loan providers currently in the UK market further down in our guide.
Step 2: Start the application process
Once you have found a suitable short term loan provider, you will then to start the online application. Simply enter the amount of money that you want to borrow alongside the number of weeks/months you need to pay it back, and move to the next stage of the application.
Step 3: Enter your personal and financial information
Irrespective of what loan type you are applying for, you will always need to provide the lender with a range of information linked to your identity and financial standing. Regarding the former, this will include your full name, home address, date of birth, residency status, telephone number, and email address. When it comes to your financial standing, you will initially need to let the lender know what your employment status is, how much you earn each month, the name and location of your employer, and how frequently you get paid.
Furthermore, the lender will also ask you some question regarding your current and previous relationship with credit. Notably, this will include what debt obligations you currently have outstanding, such as other loans, credit cards, or store cards.
Step 4: Read the digital loan agreement and sign it
Within 30-60 seconds of submitting your application, the lender will let you know whether or not your application was successful. If it was, you will now be able to view your respective loan terms. Be sure to read through the terms thoroughly, as this will outline the APR you’ll be paying, and what your weekly/monthly payments will amount to. Furthermore, you’ll also need to assess what late or missed payment fees the lender charges in the unfortunate event that you fall behind on the loan.
If you’re happy with the terms of the loan, then you’ll now need to enter your bank account details. This is the bank account that your loan funds will be transferred to. Moreover, you’ll likely be asked to set up a direct debit from this bank account so that you can make your repayments automatically. Finally, sign the loan agreement to complete the application.
Step 5: Satisfy the verification checks
There may come a time where the lender requires a bit more information from you before they can transfer your loan funds across. If they do, this is likely to be in relation to your employment status. We often find that lenders will ask for a copy of your recent payslip to verify your stated income, or to validate your place of work. Alternatively, they might call you at your place of work to do this, although they will let you know beforehand.
Step 6: Funding and repaying the money
Once the lender is satisfied with your identity and employment checks, they will then transfer the loan funds into your bank account. You will then, of course, need to start making your weekly or monthly payments. As you will have likely set up a direct debit, this will come out of your bank account on the agreed payment date(s) automatically. As such, make sure that you always have enough money in your account to cover the payments.
Criteria used to rank the best short term lenders
- Lenders with the most competitive interest rates
- How much the lender is able to offer
- What credit score you need to obtain the short term loan
- What loan terms are available
- Registered with the FCA as an approved UK lender
What is a Short Term Loan?
In its most basic form, a short term loan is simply a loan that comes with a repayment term of less than 12 months. This makes the term a broad one, as a short term loan could, in theory, cover both a payday loan and an instalment loan – as long as it does not exceed a loan term of 1 year. For example, while you might require a short term loan of £200 to cover the costs of a leaking pipe, equally, a short term loan might also see you borrow £3,000 over the space of 12 months to pay for an upcoming holiday.
With that being said, here’s a quick breakdown of the two main short term loan types.
You might need to choose from one of the best payday loans if the amount of money that you require is very low. For example, while personal loan companies will typically not facilitate a loan for less than £1,000, payday loan firms typically offer loans from just £100 – sometimes less.
As you may well know, payday loans often come with a really high rate of interest, so you’ll need to bear this in mind before proceeding. On the other hand, if you only need to borrow a very small amount, then you’ll likely have no other option, not least because personal loans require you to borrow much more.
If you need to borrow a slightly larger amount of money, then you might be best off going with a personal loan. However, it is important to remember that in most cases, the minimum loan term will sit at 12 months.
On the flip side, personal loans will usually come with a much more favourable rate of interest in comparison to a payday loan, especially if you are in receipt of a healthy credit score. Just remember, if you take out a personal loan of more than 1 year, then this is then considered a long term loan.
Am I eligible for a Short Term Loan?
While some lenders will offer exceptionally good rates on short term loans, they will typically tailor their packages towards borrowers with a good credit profile. With that being said, there is also a plethora of lenders that offer their loans to those with poor, or very poor credit profiles. As such, the minimum eligibility requirements will vary depending on the short term loan provider you go with.
Nevertheless, here is a quick breakdown of some of the key metrics that short term loan lenders will look for when you go through the application process.
I. Credit Score
Most lenders will need to run a credit check on you when you apply for a short term loan. This allows lenders to determine whether or not you are suitable for the loan, and if you are, how much interest they should charge you to offset the risks. If you believe that your credit score is damaged, you might be able to find a no credit check lender. Rather than basing their decision on your credit score per-say, they’ll instead look at other metrics such as your income.
Short term loan providers will always ask you about your income. This not only includes your employment status (full-time, part-time, self-employed, etc.), but more crucially – how much you earn. The overarching reason for this is that the lender needs to feel satisfied that you have the means to repay your loan back on time. As such, most lenders will state that you need to have a minimum income in order to qualify for the loan. Once again, if you are opting for a payday loan lender, you might be eligible even if you are on a low income.
III. Current Debt Obligations
Although you might be in possession of a good credit score and a reasonably good income, this doesn’t necessarily mean that you will be eligible for a short term loan. The reason for this is that the lender will need to assess what debts you currently have outstanding. For example, if you currently have large balances outstanding across multiple loans and credit cards, the lender might deem that taking out an additional debt product is too risky for you and thus – decline the application.
IV. Age, Residency, and UK Bank Account
The final eligibility requirements that you will need to take into account – irrespective of the short term loan provider you go with, is with respect to your age, residency status, and bank account. In a nutshell, you will need to be aged at least 18 in order to qualify for a short term loan, and have been a UK resident for at least 3 years. Moreover, you will also need to have a valid UK bank account. This is to ensure that you can set up a direct debit agreement on your loan repayments.
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Glossary of loaning Terms
A credit score shows your creditworthiness. It's primarily based on how much money you owe to loan or credit card companies, if you have ever missed payments or if you have ever defaulted on a loan.
Guaranteed Approval is when, no matter how bad, your credit score its, your loan application will not get declined.
A Credit Limit is the highest amont of credit a lender will lend to the borrower.
Collateral is when you put up an item against your loan such as your house or car. These can be repossessed if you miss payments.
A Cash Advance is a short-term loan that has steep interest rates and fees.
Your Credit Rating is how likely you are to fulfill your loan payments and how risky you are as a borrower.
Fixed Interest Rate is when the interest rate of your loan will not change over the period you are paying off you loan.
The Interest is a percentage based on the amount of your loan that you pay back to the lender for using their money
If you default on your loan it means you are unable to keep up with your payments and no longer pay back your loan.
If you miss a payment the lender will charge you for being late, this is known as a late fee.
An Unsecured Personal Loan is when you have a loan based solely on your creditworthliness without using collateral.
A Secured Loan is when you put collateral such as your house or car up against the amount you're borrowing.
This is the Interest Rate used by banks for borrowers with good credit scores.
The Principal amount the borrower owes the lender, not including any interest or fees.
A Variable Rate is when the interest rate of you loan will change with inflation. Sometimes this will lower your interest rate, but other times it will increase.
An Installment Loan is a loan that is paid back bi-weekly or monthly over the period in which the loan is borrowed for.
A Bridge Loan is a short term loand that can last from 2 weeks up to 3 years dependant on lender.
Having an AAA Credit Rating is the highest rating you can have.
A Guarantor co-signs on a loan stating the borrower is able to make the payments, but if they miss any or default the Guarantor will have to pay.
LIBOR is the London Inter-Bank Offered Rate which is the benchmarker for the interest rates in London. It is an average of the estimates interest rates given by different banks based on what they feel would be the best interest rate for future loans.
Home Equity Loans is where you borrow the equity from your property and pay it back with interest and fees over an agreed time period with the lender.
Debt Consolidation is when you take out one loans to pay off all others. This leads to one monthly payment, usually with a lower interest rate.
If you obtain a Student Loan to pay your way through College then you loan is held with the Department for Education U.K.
Financial Aid in the form of grants is funding available to post-secondary education students throughout the United Kingdom and you are not required to pay grant
What is a short term loan?
In its purest form, a short term loan is a loan that comes with a term of less than 12 months. This could be anything from a payday loan of 7 days, up to a fully-fledged personal loan with instalments being made over the course of 1 year.
Do I need to have a good credit score to get a short term loan?
Due to the sheer size of the online lending space, there are now short term loans available for all credit profiles. If you have great credit, then you'll benefit from the best interest rates. However, if your credit is less than ideal, you will still likely find a suitable short term loan lender, albeit, your interest will be much higher.
How quickly can I get a short term loan?
If you are opting for a conventional payday loan lender, then you might be able to get the funds in as quickly as one hour. However, this is on the proviso that the lender is able to verify your information electronically, without the need of supporting documentation.