When a financial emergency hits, a short-term loan can be there to help.
A short-term loan is where the amount borrowed and the interest are paid back in less than a year. It’s not like a bank loan, in that you don’t pay a short term loan off over years and it often comes with a higher APR. The borrowing amount is usually low, starting from as little as say, £50, and going up to around £2,000 or higher in some cases.
Short term loans may be appropriate for people who all of a sudden find themselves with a big expense they feel they can’t avoid, like a home repair or a car repair. They might also be helpful for people who don’t get regular work and need something to tide them over until their next pay cheque, when they can pay back the loan and the interest.
Usually, this type of borrowing is what’s called an unsecured loan, which means you aren’t borrowing against something you already own such as a car. Should you not be able to pay a loan back, the items which you secured the loan against will not be repossessed as payment.
There are many different shapes and sizes of short-term loans, but there are a few main varieties that dominate the market:
• Doorstep – Once your application has been completed, and you have been approved in principle, an Agent will come and visit you at home to discuss the loan and complete an assessment of affordability to understand whether you can afford to borrow the amount you’ve requested. If you are accepted they’ll give you the loan in cash and you repay the loan in instalments in cash every week.
• Payday – Typically, they’re paid back in one lump sum when the borrower gets their pay packet. Certain high street lenders offer these, you can visit a branch to receive your loan and repayments are taken out of your bank account, often automatically by what’s called a continuous payment authority.
• Online/instalment – The loan application and approval process is all done online and you pay back over several months, but usually no longer than a year. Online loans can also get the money into your bank account quickly – sometimes within minutes of it being approved.
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What is a short term loan