Tips for getting the best short-term loan
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
30th November 2020
4 minute read
Have you been thinking about getting a short-term loan? The decision is often one of necessity, especially if you’re facing an unexpected bill or payment you urgently need to make, but would be unable to afford it until payday. Getting a short loan can give you some breathing room, allowing you to cover the expense and pay back the full amount at a later date.
It’s always worth remaining cautious around borrowing of any kind, but in particular, short-term loans. This is because interest rates are often very high with these types of loans, and can often lead to a staggering amount of debt if you fail to pay them off in time.
Make sure you pick out the best short-term loan for you by reading up on our useful tips included below. This will help you follow step-by-step instructions rather than rushing in and getting a short-term loan that does not suit your circumstances.
Conveniently, the Guru is incapable of rushing into anything. Partly because he is a wise financial guru, but mostly because he insists on wearing a wildly impractical combination of socks and sandals. Read on to discover our tips for getting the best short-term loan and if you’re prone to rushing into things, you might want to adopt the Guru’s taste in footwear too.
1. Take your time
If your boiler suddenly breaks and you’re left without heating, your first response will probably be to get it sorted as soon as possible. If you haven’t got the money to pay for the repair, this could lead to you diving into a short-term loan head first without considering the consequences.
To avoid getting stuck with a loan that you will struggle to pay off, you need to take a step back and consider if a short-term loan is the right option for you. Even if it is the right option, make sure you have properly considered the terms of the loan before applying.
Rushing in without thinking about the consequences can lead to a few nightmare scenarios:
- You could apply and be rejected, damaging your credit score
- You could struggle to pay off the loan within the agreed timescale, leading to further late fees and penalties
- You could be hit with a CCJ for being unable to repay the loan, which can seriously damage your chances of being accepted for finance in the future
Read up on alternatives to personal loans to see if there are any other options that might be preferable in your current situation.
2. Be realistic with your finances
If you think a short-term loan is a good option, then the next step is to look at your current financial situation and find out whether you can realistically afford to pay back a loan.
Whilst a short-term loan can come through very quickly and is ideal in an emergency, the downside is the high interest rate. It could mean that you will actually be paying back double the amount you borrowed, which might put you in a sticky situation if you can’t afford to pay it back.
Each loan should have a clear repayment plan and should indicate how much per month you will be expected to pay. If you know you have enough to cover the repayments by looking at your income and your outgoings every month, then a short-term loan might just be the way to go.
3. Ask yourself the right questions
After you’ve sat down with your personal finances and made sure you’re being realistic, it’s time to ask yourself a few important questions:
- Do I need the money urgently or can I wait until payday?
- Can I afford to make repayments every month?
- How long will it take me to pay off the full amount?
- Am I comfortable with paying interest on top of what I want to borrow?
These questions should help you figure out whether a short-term loan is a good idea, given your current circumstances, or if you need to consider alternative options instead.
4. Check your eligibility first
Confident you can afford to repay your short-term loan? Before you click ‘apply’, have a look at our free moneymatcher comparison tool, which will give you a list of recommended options based on a few personal details.
Using an eligibility tool is important as it is the safe way to start your search for a short-term loan, without damaging your credit score. This is because it performs a soft search on your credit file, simply to ascertain if you meet the minimum requirements, rather than a hard search that is a lot more in-depth and will affect your credit rating.
If you aren’t sure what your credit score is, you might also want to check your credit report to ensure you will be accepted for a short-term loan. Thankfully, this type of loan will usually allow those with a low credit score to be accepted.
5. Start your search
When looking at a number of short-term loans, you’ll find a few good points of comparison between them, which will allow you to decide which one might be right for you.
- Interest rate – you can compare the representative APR, which will seem astronomically high compared to other loans, but if you are taking it over two months, then you won’t pay anywhere close to this amount. Look out for the fixed annual rate instead, which should indicate what you would be likely to pay over the agreed loan term
- Repayment example – by adjusting the loan amount and loan term above our loan tables, you will find out exactly how much you can expect to pay in interest
- Representative example – this lender example might not match your exact amount and loan period, but should still give you an idea what you are likely to pay back if you are accepted for that particular short-term loan
- Low credit rating accepted – for short-term loans it usually shows that a low credit rating is accepted, but this will change if you start looking at standard personal loans
Your choices can often be limited if you have a low credit score so if you find the terms of a short-term loan unfavourable, it might be a better idea to seek an alternative and concentrate on improving your credit score instead. This will increase your options when it comes to personal loans and give you access to better interest rates too.
Should I apply for a short-term loan online?
Hopefully the information above should help you find the best short-term loan for you, or at least make you consider an alternative such as a credit card, bad credit loan or even an overdraft, where you can avoid a high interest rate altogether.
Make sure to take your time, research the loan you have in mind, factor in your current financial situation and always use moneymatcher before you apply.