What Are Short Term Loans?
To understand short term loans, you first need to be clear about what personal loans are. Personal loans are nothing but loans taken by individuals. A small loan is a short personal loan in which both the loan amount and repayment period are shorter. You may have heard of people applying for mortgages and car loans. Loans for buying a house or car are long-term loans that go on for tens of years. Short term loans are quite the opposite. You usually borrow a small amount of money and choose to repay it over a few weeks or a few months. This makes it easier for borrowers to make their repayments regularly and consistently. If you look at the marketplace, most lenders like us give approval by the same evening for applications submitted in the morning. We offer best short term loans if you don't have access to other means of credit or were denied credit by banks and building societies.
Are Short Term Loans the Right Solution for me?
Unsecured loans, as they are also called, don't require you to attach your personal assets like property or car. These unsecured loans are often the best solution as there's no risk of losing your belongings. If you miss one or two payments, the lender can't recover his money by selling your assets. But, late repayment can cause you serious problems. So, you shouldn't have a casual outlook towards loans, however easily they may be got. Often, individuals have reduced choice of lenders if they have a poor credit rating and no access to credit cards. In 9 out of 10 cases, small loans prove themselves the right option as the upfront cost of the loan is less than the cost of late fees on missed bill payments.
What Can Short Term Loans Be Used For?
Sometimes, unforeseen expenses present themselves to us. Everything would be going fine till something happens to throw you off your balance. If your fridge were to get spoilt, it would no longer be useful to store food. In the same way, if your car were to break down, getting to work might take longer than usual. In both instances, the machines need replacing but you might think, “I can't afford to spend on repairs or replacement at the moment! My paycheck isn't due till the next two weeks. What do I do?" Had it been that you were planning for a replacement, you'd have saved up well in advance. Other events like a broken water pipeline or a leaking roof also make your wallet lighter. To be honest, there's a simple solution. Apply for our small loans.
How Do Short Term Loans Work?
This type of borrowing works in the same way as long term loans, only that they are for a shorter term. The amount you wish to borrow as little loans is called the principal and the amount you pay above the principal is known as interest. You can borrow from £50 to more than £1,000 and pay it back with interest. Many people find that they've exhausted their money while there's still time to go for their next salary. If this is the case, they can get instant payday loans. Also, you get flexibility about how frequently you wish to repay the loan. It's worth remembering that interest is slightly different than APR (Annual Percentage Rate). APR is a comprehensive term that includes interest and other fees included in loan borrowing. This terminology is generally used for long term loans, but it applies to short term loans too. APR is generally calculated as a percentage on the original loan. The calculation is done for a period of 12 months, although your loan term may be shorter. Lenders often advertise low APRs to attract customers. However, only 49% of applicants actually get the benefit of a low APR. More often than not, poor credit history applicants fall into the rest 51% and are offered high APRs.
How Much Does a Short Term Loan Cost?
When you borrow these loans, you'll have to repay not only what you borrow but also charges by the lender. These charges, also called Annual Percentage Rate, are made up of two components: interest and fees. Interest, in simple words, is the daily price lenders ask for lending money. Three factors influence how much interest you'll end up paying: interest rate, loan term and loan amount. The interest amount rises in direct proportion to the interest rate. Higher the interest rate, higher will be your interest payments on short term loans.
When it comes to how much these unsecured loans actually cost, a majority of lenders advertise a high APR, often north of 1000%.
But Do I Really Have To Pay 1000% in Interest?
There's good news. Because lenders were charging unusually high amounts as interest, the Financial Conduct Authority (FCA) has brought in legislation to cap this amount. Now, the cap has been set at 0.8% interest per day, that is, 100% of the amount borrowed. Default fees can now be charged only upto a maximum of £15. Let's take an imaginary example. If you borrow £150 for a fortnight at interest rate of 292% pa and APR of 1,509%, the amount payable in total will add up to £166.80. That means, you're paying only £16.80 as interest on the £150 loan your borrowed.
So Why is a High APR Advertised?
The reason such a high APR is advertised is because if you take out short term loans for a year which are “cap free”, you would get this APR. But, that's rarely the case as the cap is already in place and most people just borrow for upto three months. The purpose of APR is for efficient comparison of financial products but it's not that helpful for small loans. You should instead compare small loans deals by the total amount repayable.
Will Short Term Loans Affect my Credit Score?
So long as you repay your loans in full and on time, it shouldn't normally affect your credit score. Keep in mind that some companies may be critical of people who borrow short term loans, so having bad credit may make obtaining such loans difficult. However, it differs from company to company. We, for one, don't place so much emphasis on credit history while giving these loans. You can easily get credit even if you have a poorly managed your finances. Your credit score may be calculated differently by lenders and credit reference agencies in the UK.
Can I Improve My Credit Rating with a Short Term Loan?
Yes, for that matter, any type of debt will look good on your credit file as long as you stay up to date with payments. With regular and consistent repayment of short term loans, there is a great chance your credit rating will improve. It's all about carefully keeping track of your pounds and demonstrating that you're not a risk to lenders.