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Short term loan interest rates explained

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Short-term loans are ideal for those emergency situations where you need to borrow money to cover an immediate expense, but plan to pay it back in a matter of months (but hopefully less). However, if you’ve previously looked at personal loans, you might be shocked to see how high the interest rate is.

As much as it might seem astronomically high, if you do the calculation of a particular short-term loan over the period you’ve suggested, you might find that the loan is actually still affordable for your purposes.

In contrast, you might also find that a loan deal is unaffordable for your purposes, so may seek alternatives to a short-term loan.

If you want to figure out whether a short-term loan would suit you as a borrower, we’ve provided you with a short, informative guide. And no, we’re not talking about the Guru without his platform sandals on.

How to find the best short-term loan for you

The two elements you need to consider when choosing the best short-term loan for you are:

  • Interest rate – initially, take this with a pinch of salt. It might seem high but since you’re only borrowing for a short time, you might not have to pay very much on top
  • Repayment term – this will indicate how long you will be borrowing for. Given you will have a high interest rate, you should always try and borrow for as little time as possible

Your interest rate, and therefore how much credit you can be expected to repay is usually represented by an APR (or Annual Purchase Rate). However, since a short-term loan is only taken over a matter of months, it means that you will never need to pay as much as it is indicating, as you might only be borrowing for 90 days (for example).

Instead, check the representative example to find out how much you might expect to pay back. Since the interest rate is high, it means that you need to plan ahead and ensure you can make the repayments without any delay.

Different types of loan interest rates

You might also find that lenders will provide different types of interest rate as part of the loan deal:

Fixed APRs

  • You will have a rate dictated by your lender
  • The total amount you repay won’t change
  • You can see your exact repayment schedule before you start paying it

The biggest advantage with having a fixed APR is that you can predict exactly how much you will be repaying, without you being charged anything extra along the way. This is usually a preferable interest rate as it gives you a chance to plan exactly when you need to make payments within your loan period.

Find out more about fixed rate interest rates here.

Variable APRs

  • You will have a rate dictated by your lender
  • This rate can change depending on fluctuations in the market
  • You will have a repayment schedule but the amount you owe will usually change

On the other hand, you could choose a variable APR as part of a loan offer, meaning that your interest rate will change at the same time as market interest rates. This is usually in line with the Bank of England interest rate, but with it being a short-term loan, the interest rate will be considerably higher.

Find out more about variable rate interest rates here.

Can I get a short-term loan with low APR?

Rather than looking for the lowest APR, concentrate on having the lowest loan period instead. In this regard, you won’t have much time to rack up much interest, meaning you can keep your repayments to a minimum.

Unfortunately, most short-term loans will have a high APR to reflect the fact that you’re only borrowing for a very limited time. Whilst you will find that a variable APR is much lower than a fixed APR, it’s always worth checking the representative example to see what you might end up paying.

What next?

Are you ready to start looking for short-term loans? Before you rush into applications, make sure you check your eligibility through our free moneymatcher comparison tool. This will allow you to see the loan products that are best suited to your circumstances, and the best part is it won’t have any affect on your credit score.

Once you’re happy with eligibility (you can find out more about eligibility here), feel free to browse through our available short-term loans to find the best one for you using the link below. Good luck!

Robert Bester - Content Writer

Updated on 22nd May 2019