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Compare short-term loans and check your eligibility
A short-term loan can come in handy if you have an unexpected and urgent expense that you’re unable to pay for out of your income or savings.
It could help you spread the cost of a purchase that wouldn’t be possible without borrowing.
But are there other options you could consider? Let’s take a look…
As the name suggests, it’s when you borrow money from a loan provider for a short period of time and agree to make monthly repayments until the whole debt has been repaid, plus interest.
Short-term loans can be used to borrow up to £3,000 (depending on the lender) for up to two years. Typically, they last less than a year though.
You’ll be required to pay interest on your monthly payments, which will generally be at a higher rate than a standard loan. This is because there’s a higher risk of defaulting on a short-term loan.
They’re usually personal loans, which means that they’re unsecured. However, there are guarantor short-term loans available if you have a poor credit score or are yet to build one up.
It’s possible to take out a loan with a term of just one month.
It’s worth remembering that the cheapest way to borrow money is by choosing the shortest loan term with affordable monthly repayments. The longer the term, the more you’ll pay in interest overall.
Bear in mind that you don’t want to default on your payments though, so pick a loan term where you can comfortably keep up with your repayment schedule without putting yourself under financial stress.
They can come in handy if you’ve been hit with an unexpected cost which you’d struggle to pay without help. This could be for:
Although they’re both types of short-term borrowing, they work a little differently.
A payday loan is designed to be repaid with your next paycheck in one lump sum (similar to one month loan), whereas you can take a short-term loan out for up to two years, spreading the cost over a number of months. This is still a lot shorter than standard personal loans which can last up to ten years.
You may be able to borrow more with a short-term loan, sometimes up to £3,000, compared to a payday loan which tends to be £1,000 or less.
You’ll also notice that payday loans will have much higher interest rates than short-term loans because they’re designed to be repaid in a month or less.
A short-term loan may be a good option if you’re looking to borrow a relatively small amount and are certain that you’ll have the money to pay it off quickly.
It’s important to compare the options available to you, even if you need the money urgently.
When you compare with us, you can choose the required loan term easily, whether it’s months or years. Just tell us how much you need to borrow, as well as some details about yourself and your income.
We can then use our smart search to perform a soft credit check, this enables us to show the loans you’re more likely to be accepted for without impacting your credit score.
Remember that multiple applications and failed applications can negatively affect your credit report.
Be wary of payday lenders masquerading as short-term loan providers when you use a search engine. They can use wording which makes it difficult to determine what kind of lender they are.
Before you hit ‘Apply’ consider the following options:
If you can get accepted for one, a 0% purchase card (or low-interest option) can be a great way to spread the cost of a big purchase without having to pay any interest.
It’s vital that you make at least your minimum monthly payments to keep your 0% introductory offer and be sure to pay off the balance in full before it ends. After this, you’ll be moved to the lender’s expensive standard variable rate.
If your current account has this facility available, consider using it. If not, you might want to think about switching to an account that has one.
Just make sure that you don’t go over the limit or you’ll be charged.
You can transfer money from the credit card into your current account. You’ll be charged a low interest rate for a short period, after which it will increase. Pay off the debt before this happens and be aware that there’s a fee for transferring.
To be accepted for a short-term loan you’ll be required to fulfil the lender’s eligibility criteria. Typically, you must:
The lender will also conduct an affordability check when you apply which enables them to analyse whether you’re likely to make your repayments on time based on your current finances and borrowing history. A good credit score will give you access to cheaper interest rates.
Approach it as you would any other loan. You want to find the cheapest option available to you.
Take a look at interest rates and annual percentage rates (APR) to see how much the loan will cost you. Although if the loan term is less than a year, the APR may not be as useful.
It’s worth noting that the advertised interest rate isn’t necessarily the rate you’ll receive. Lenders are only required to offer it to 51% of successful applicants, which means yours could be higher.
You’ll also want to search for any fees or charges that may be applicable to you, including early repayment charges if you wish to pay back your loan before the term ends.
Check out our loan calculator to see the overall cost of borrowing and what your monthly repayments could look like.
It’s always best to get ahead of the problem and notify your lender before you start defaulting on your payments.
They’ll be able to work with you to reach a solution that can ease the pressure. This could be in the form of a repayment holiday, which is when you’re able to stop making your monthly payments for an agreed time, you’ll still be required to pay interest during this time though. Alternatively, you may be able to adjust your payment schedule to suit.
You can always speak to an adviser from StepChange or National Debtline for free information on how to get back on track, too.
A short-term loan could be the right choice for someone who is temporarily unable to afford a necessary expense, but will be able to comfortably afford the amount (plus interest) spread out over a number of months.
It could also be worth thinking about if you’re unable to access a 0% purchase credit card or overdraft.
No, typically they’re personal loans, however it’s possible to get a short-term guarantor loan.
You may want to consider this if you’d be unable to access a loan by yourself because you have bad credit.
A guarantor loan is when a family member or close friend agrees to pay off the debt if you’re not able to. This acts as security for the lender, so you’re seen as less of a risk.
Borrowing in any form can temporarily affect your credit score, but as you make your repayments on time and in full, it will steadily improve. Using credit responsibly will benefit your credit score.
Just remember that any missed repayments or failed applications can mean that your score takes a hit, affecting your future chances of borrowing.
It’s possible but your options will be limited, and you’ll usually only be able to borrow a small amount and will be subject to higher interest rates.
If a loan is definitely the route you want to take, you may want to think about a guarantor loan.
Beware of payday loans and avoid them, if possible, they can lead to debt stacking up which is hard to escape.
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