Broken down fridge freezer made a flood in your kitchen? Maybe a massive vet’s bill just landed on the mat?
Short term loans can be handy for getting you, or the family pet, out of sticky situations. When you want to borrow a smaller amount of money to tide you over or need to fix a problem fast, there are a few ways to get a short term personal loan under your belt.
What is a Short Term Loan?
If you thought a short term loan was just a personal loan that’s not as large or lengthy, you’d be partially correct. Short term loans are generally for smaller amounts, usually under £3,000 but they could be as small as £100. Payday loans and bridge loans for homes are specific types of short term loans, which we’ve got some great guides on too.
However, if you’re hoping to borrow a relatively low amount for around three months to a year, a short term loan might be for you. They’re designed to give a bit more flexibility than a payday loan, so you get a little longer to pay them back and don’t need to drain all the cash from one month’s salary. This hopefully means it’s less likely that you’ll need to renew the loan or borrow more to pay it back.
Having said this, a short term loan is still a big commitment and if you find that this is the only type of loan available to you, you’re probably suffering from a lower credit score and may have been refused better and cheaper products from your bank or other mainstream lenders. If you’re not sure where you stand, moneymatcher can help you compare the products that are on offer to you, taking into account your personal circumstances.
Short term loans: a summary
- Usually repaid in less than 12 months
- Usually for amounts under £3,000
- More flexible than a payday loan
- Often have higher interest than longer term loans
Short term loans are sometimes called instalment loans as they usually have fixed monthly payments. They’re unsecured too because they aren’t fixed on collateral like your home or car.
Short term loans tend to be processed very quickly, though they are subject to high interest rates compared with other types of borrowing. This is why short term loans are really only for emergency lending.
If you take out a short term personal loan you should be completely sure that you can afford to pay it back. You also need to be aware that taking out short term loans can have a negative impact on your credit score as using them is seen as evidence of money management problems. They’re definitely not something you want to dip into regularly, but like other types of borrowing, they can be useful in certain situations.
Think a short term loan is not the loan for you? See our info on which personal loan is best for me or alternatives to a personal loan here.
Compare Short Term Loans
The annual percentage rates (APRs) on some short term loans are really high, but you still need to compare them and be aware of them as part of the bigger picture, so you can make the best choice for your finances. When you’re searching for a short term loan, you may also find you need to meet specific criteria to qualify for certain products.
If time is of the essence, make sure to check how quickly you would receive the money.Lenders will also take your credit score into account when considering your eligibility for different products. Take the time to check yours and correct any errors if possible, as it could help you get a better deal.
Arrangement Fees for Short Term Loans
When you’re comparing short term loans, something to look out for arrangement fees or early repayment fees on different loans
Make sure you compare total costs of loans on our moneymatcher and look at information on any extra fees too. Short term loans are covered by the payday lending loans cap, which means that the maximum amount you should ever pay back is twice what you’ve borrowed. That said, if you run into trouble and fail to meet your payments, your credit rating and financial situation could both take a big knock.
Is a Short Term Loan Right for Me?
To take out a short term loan you’ll need a regular monthly income to be sure you can pay it back. Lenders tend to ask for your bankcard details, which means they can take your payments straight from your bank account through a Continuous Payment Authority (CPA). In theory, this makes getting your money to the lender easier, but not if there’s no money in your account. You therefore need to plan your budget carefully.
Alternatives to Short Term Loans
If you need some money for an unexpected event, as an alternative to a short term loan you could ask your bank to extend your overdraft. You could also explore the option of taking out a 0% credit card, if you can pay for the things you need on plastic. If not, a money transfer credit card (the type you can transfer the balance into your account) may be something to consider.
If you get one with a 0% period you’ll generally only pay a small percentage of your total balance, (for example, 2% of a £3000 balance,) for the transfer itself. Just make sure you can pay the money back quickly, within the 0% period before any interest kicks in, and never withdraw from the card as this can be very expensive.
When you’re confident a short term loan is right for you, make sure you have an exit strategy in place so you don’t need to rely on borrowing in the future. Pay off your loan on time and start topping up that rainy day fund in case of future problems.