Read this quick guide to learn everything you need to know about short term loans, put together by UK direct lender cashasap.co.uk. Short term loans are often best avoided, but in some situations can be a really helpful tool — read more to find out whether short term loans are a viable option for your family when you’re in a financial fix.
What Are Short Term Loans?
Short term loans are a form of personal loan that allows you to borrow money over a short period of time. This could range anywhere between one day to a few months, and you can borrow money from £100 to £1000 — depending on the lender, your credit score and other factors.
The biggest benefit of short term loans is that you can get instant cash. The vast majority of lenders will provide same day bank transfers so you can get money quickly when you need it.
The important thing to remember, however, is that short term loans are expensive. They have a big benefit (instant cash) but with a big APR, so you have to be careful to look at how much precisely you’re going to have to pay back and when. If you’re borrowing money over just a few days, then the loan will be more affordable than borrowing over a few weeks. Look at what you can afford to pay back before applying for any short term loan.
There are two main types of short term loans: payday loans and instalment loans. They both have different pros and cons so are suitable for different circumstances.
Payday Loans vs Instalment Loans
Both payday and instalment loans are forms of short term loans.
Payday loans are intended to allow you to borrow money ahead of payday, which you then pay back in one bulk sum after you’ve been paid. Because of this, they allow you to borrow anywhere between 1 day and 36 days.
Instalment loans are designed to allow you to borrow money but pay it back across three instalments, spreading the repayments. They usually span across three months.
Payday loans are cheaper than instalment loans because you’re borrowing money over a shorter period of time. However, instalment loans can make repayment easier as you pay back three smaller amounts rather than one bulk payment.
Important Facts About Short Term Loans
Short term loans are not for everyone. In fact, they’re not for many people, but there are some circumstances in which they are appropriate and might be the best choice. Read these important facts before you apply for any loan so you’re fully informed.
Not Everyone Can Get A Loan
There are various criteria you have to meet in order to be accepted for a loan. This is to protect people who are more financially vulnerable from getting into debt. For example, you have to be over 18, in employment and have a good credit score.
If you have a bad credit score, you will find it really hard to get a loan. This is for two reasons. Firstly, lenders don’t want to offer money that they won’t get back. Secondly, they have a duty to take reasonable action, within their power, to minimise the risk of people getting into debt.
Loans Impact Your Credit Score
Not only is your ability to get a loan impacted by your credit score, but your credit score is impacted by your loan. Every time you borrow money (in an official capacity!), it will impact your credit score, for better or worse. This includes car finance plans, phone contracts and short term loans.
If you borrow money and pay it back on time, it will improve your credit score. However, late payments will have a negative impact.
And Your Ability To Get A Mortgage
A short term loan, such as a payday loan, will also impact your ability to get a mortgage. Banks and building societies will look at your credit file before they give you an agreement in principle, or an actual mortgage. If they see that you have recently taken a payday loan, even if you paid it back, they’ll take that as a sign that you are financially unstable and therefore might not be able to keep up with mortgage repayments.
After a few years, this won’t have an impact, but if you’re looking to get a mortgage any time soon then you might want to avoid a short term loan.
Short term loans have the benefit of instant cash transfers, but they are expensive. You should only ever get a short term loan if you’re confident that you can pay it back on time.
*Featured partner post.