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How does a short-term loan work?

man and woman sat together on floor looking at tablet
man and woman sat together on floor looking at tablet

Short-term loans can be an interim solution to many kinds of money issues.

The type of loan you get and the lender you get it from can depend on how it works. But in most cases, the main steps are the same:

• It starts with you and the company you’re borrowing from, agreeing on an amount you can afford to borrow and the total amount you can afford to repay after all the interest has been worked out.
• You’ll agree on a term of how long to take the loan out for which suits you.
• You’ll then decide what date is best to make your repayments on. You’ll get your loan and repayments will begin.
• You’ll continue to make repayments until the term of your loan is completed.

That’s a broad overview, but there are some key differences for certain kinds of loans.

Payday loans

This kind of lending is designed to give you the money you need until you can pay it back all at once, including interest charged. That typically happens on your next payday – which explains the name. Some payday lenders do allow you to pay back over two or three months if you think you can’t pay it all back at once. Often these lenders will collect the money out of your account on the day you both agreed at the start, regardless of the funds being there, which could leave you overdrawn if there’s not enough.

Doorstep loans

Once you’ve applied for your loan and if you’ve been accepted, doorstep loans are delivered to your home by an Agent. The Agent then comes to your home at a date and time that suits you to collect repayments.

Provident are the leading home collection loan company in the UK and Republic of Ireland. If you decide to take out a loan with Provident, you can contact us by telephone, online or if you know the local agent, you can contact them to apply for a loan. As part of your application, we’ll complete a credit check. Once you’ve been accepted in principle, an Agent will visit you in your home and complete an Affordability Assessment to ensure you can afford to make repayments and check that you’re happy with your loan agreement and terms. If you’re happy, they’ll deliver your loan and come back every week to collect your payment in affordable amounts.

Doorstep loans are one of the few options where you get your loan in cash, in your own home and are able to pay it back weekly in the same way. Even if you’ve been turned down by other lenders, we at Provident may still be able to lend you the money you need.

Online/instalment loans

These are a lot like other kinds of shorter loans in the sense that you apply online for an amount that’s under £2,000 and they can be available to people with a lower credit rating. The main difference is the payments will come out of your bank account automatically, unlike a doorstep loan, and can be paid every week or month for up to a year, unlike a payday loan.

Credit Union loans

These types of organisations serve a local area, so they vary depending on where you live, but they’ll usually offer a short-term option among longer-term choices and perhaps even mortgages. As they’re all different and offer diverse services, it’s impossible to cover exactly how they all work. However, some do feature low-APR borrowing and reduced fees and charges.

Text/mobile loans

Less commonly used, these are available after signing up online then texting a number to activate your loan. Often, you’ll receive part or all of the loan amount in your bank account within minutes. However, these often come at a high APR and don’t always offer large sums of money.

When should a short-term loan be paid back?

Regardless of which option you take and the length of time you’re given to pay it back, you should always aim to make repayments by the date agreed between you and the lender.

If you’re struggling with repayments and you have a Provident loan, speak to your Agent or see this page.

Alternatively, for free, impartial advice, see the Money Advice Service, National Debtline, or StepChange.

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