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A Short Term Loans Guide

06 September 2023

Small, flexible and easy to manage, there’s a lot to like about short term loans. Providing borrowers with a quick and simple way to borrow money when they have no other options, they can be ideal in many situations. Perhaps your savings are low, your friends or family cannot help you temporarily, or you are simply a few days or weeks until your next salary date, the best short term loans will give you options to suit your budget.

If you find yourself needing to cover a short-term emergency, an unexpected bill that comes at the wrong time, or need to cover costs until your next income date, you’ll want to find the best borrowing options available to you. In this short term loans guide, we’ll help you understand what short term loans are, why you may need one, and how to understand the various terms and conditions as well as the risks of borrowing this type of loan. We’ll also show you how to choose a reputable lender from the many available online, and what alternatives are out there for you if you have a poor credit history.

Here at QuidMarket, we’re a direct lender of short term loans that understands customers are more than their credit scores. We take a human approach to lending which differs from many lenders, focusing on your financial situation and affordability, rather than just a credit score. Discover more about short term loans in this guide, and if you have any questions, please get in contact and we’ll be happy to help.

What Are Short-Term Loans?

The simple definition of short term loans is that they are a form of borrowing that can be repaid over a short period of time. Sometimes they can be confused with payday loans, which whilst similar, are not the same. Short term loans provide flexibility so that customers can choose repayment terms that are affordable for them over a few months, rather than having to pay in full on their next salary date, such as with a payday loan.

Short-term refers to the loan duration being for a shorter period than other types of loans, such as a personal loan that may give you months or years to repay. This makes them ideal for accessing funds to cover a short-term financial issue for a smaller amount of money, typically under £1,500. This ensures the loan repayments are low and sustainable for borrowers throughout the loan term.

There are many reasons why someone may need a short term loan, such as to cover emergency expenses, a small, unexpected bill, or to cover cash-flow issues when in-between paydays. They are not suitable to cover long-term financial issues, other credit agreements or non-urgent outgoings, so should be considered only when there are no other available options.

As a form of high-cost, short-term credit (HCSTC), it’s important to consider the cost of borrowing, as some lenders may charge high interest rates with their loans. However, the Financial Conduct Authority (FCA) that regulates the industry introduced tighter guidelines in 2015 to ensure they remain fair for customers. This included:

These guidelines ensure direct lenders of short term loans stay compliant and borrowers have a more affordable borrowing option when they need it compared to traditional payday loans.

Types of Short-Term Loans

As there are many different circumstances you may require a short term loan, and with all borrowers being different, this means there are several different short term loans available. Whilst they all provide the same in principle, some can be more suitable for you compared to others depending on your current situation.

Payday loans – enabling you to borrow a small loan to cover expenses, payday loans traditionally require borrowers to repay the loan in full on their next payday. For this reason, payday loans will be for smaller amounts to ensure borrowers can afford to repay within a few days or weeks, whenever their next salary date is. Traditional payday loans could see borrowers having to pay back high interest fees and charges, but with the FCA price cap introduced and the industry now more regulated, payday loans today are much different. These are generally best for those needing quick cash who can definitely repay in full over a short period.

Bad credit loans – not everyone has an ‘excellent’ credit score, meaning some borrowing options are out of reach for those with a poor credit history. That’s where bad credit loans can help, providing a short-term option for those needing cash even though they may have a low credit rating. Loans for bad credit are not guaranteed to be approved, however, lenders tend to focus more on affordability and being able to sustain the loan repayments. This means if you can prove the loan is sustainable for you despite bad credit, you could be approved and choose flexible repayments. If you have struggled to find a lender who can help, bad credit loan lenders could be a suitable option.

Emergency loans – as the name suggests, these are the best short term loans to cover an emergency expense. As not everyone will have emergency savings to rely on or the help of friends and family, emergency loans provide access to quick cash when you need it most. They generally offer a quick application process that, if approved, will credit the loan funds to you within 24 hours. These are ideal for situations where an unexpected bill has to be resolved quickly and you have no other viable options.

CCJ loans – similar to bad credit loans, a CCJ loan provides a short-term borrowing option for those with a poor credit history that includes a County Court Judgement (CCJ). As a CCJ will show on your credit file for 6 years, even if you have paid it off, this can make it very difficult to borrow from many high-street lenders. For many lenders a CCJ on your credit file can instantly disqualify you from borrowing, a CCJ loan looks to help those with a CCJ get access to funds when they need it. They can’t be guaranteed but will focus on the borrowers’ ability to sustain the repayments needed.

Same Day Loans – ideal for those who need money fast, same day loans enable borrowers to receive approved loan funds on the same day they apply. As unexpected situations can occur at any time, a same day loan can help those resolve a short-term financial issue quickly when no other options are available. How quickly they pay out will depend on your bank as they will need to support the Faster Payments System (FPS) to enable credit on the same day.

No Credit Check Loans – this type of loan is usually sought by those concerned about having a poor credit history, however, no credit check loans may not always be the best option. Credit checks are important to ensure that a loan is affordable and you are not in current financial difficulties. A no credit check loan would mean this is ignored, and a loan could be approved without checking if it’s sustainable for you. There are alternatives to no credit check loans for those concerned they’ll be declined for having poor credit, which consider your affordability whilst still running credit checks.

Understanding Loan Terms and Conditions

Borrowing money when you need it seems straightforward at the outset but can be confusing when you start to look at the loan terms and conditions. Most lenders will provide transparency with their loans so that you can make a more informed decision on your finances. Here are some of the key elements of loan terms and conditions to look out for and have a basic understanding of:

Interest Rates – Short term loans may come with higher interest rates compared to long term loans due to borrowing over a shorter period of time. The interest rate represents the cost of borrowing and is typically expressed on most loans as an annual percentage rate (APR). It is important to understand the specific interest rate charged by a lender and how it will impact the overall cost of the loan you want. To find the best short term loans, it’s recommended to compare your options and use a loan calculator to determine what the repayment amount will be before applying.

Annual Percentage Rate (APR) – The APR is not only the interest rate but also any additional fees or charges associated with the loan. It provides you with a clearer picture of the total cost of borrowing by including these extra costs. Comparing the APRs of different loans allows borrowers to make more informed decisions about which loan is the most cost-effective. It’s important to note that the APR on a short term loan will look different to a personal loan, and this is because you are typically borrowing for less than 12 months. This is why the APR will look a lot higher when you compare, but the amount of interest you will pay back will be less over a 3 to 6 month period. It’s best to use a loan calculator so that you can easily see what the interest charge will be for the loan term you choose, then you can adjust the repayments to suit your budget.

Fees – Some lenders of short term loans may charge various fees. This can include application or admin fees, broker fees, as well as late payment fees. Carefully review the fees outlined in the loan terms and conditions and pay attention to any hidden or additional charges that could significantly affect the total amount to be repaid. At QuidMarket, we do not charge any additional fees or hidden fees with our loans.

Repayment Schedule – The repayment schedule outlines the specific dates and amounts due for each repayment on your short term loan. It is important to fully understand the repayment terms and ensure that they align with your financial situation. This ensures that you can make the repayments on time without issue. Many lenders will use a Continuous Payment Authority (CPA) to automatically take repayments. This is set up on your bank account using your debit card details which means all you have to do is ensure enough credit is in your bank account before the payment date. If you fail to meet the agreed upon repayment schedule this could negatively impact your credit score.

Early Repayment – Some short term loans may allow borrowers to repay the loan before the end of the loan term without incurring additional charges. This is known as early repayment, and it is important to check whether this option is available and if any fees or penalties are associated with it. The lender will give you an early settlement figure which ideally will only charge you interest for the days borrowed.

Assessing Your Financial Needs

Whilst you may need a short term loan to help you, it’s important to ensure that this form of borrowing is best for your needs. Before applying, you should consider your current financial situation, whether you can afford to take on monthly instalments alongside essential outgoings, and whether you can sustain the loan throughout the term. A financial assessment is usually the best way to determine this and will help you in your decision-making. Going through your income and outgoings will quickly tell you if a loan is affordable for you at this moment in time. Use a free online budget planner to help, such as the one through Money Helper.

When determining the loan amount you need, you should always only borrow the amount required to resolve your short term position. Whilst it may be tempting to apply for the maximum amount available to you from a lender, borrowing only what you need will help to keep repayments down and ensure you are not taking on a bigger loan than necessary.

You may need to look at budgeting to enable you to have enough funds to cover any loan repayments. When looking at a financial assessment, ideally you want to assess all sources of income and all of your essential outgoings, such as a mortgage payment or rent, utility bills, and any other credit agreements you need to maintain. You’ll then be able to go through your regular outgoings and assess which you can reduce – you may find you have a lot of non-essential payments each month that you could cut down on that will make a loan much more affordable.

Remember, a reputable lender will only approve a short term loan if they can determine the loan is sustainable for you. If they cannot see that the loan repayments and terms you want are affordable, they will have to decline. It’s best to assess your situation before applying so that you can do so with confidence.

Finding Reputable Lenders

If you are going to borrow money, finding reputable short-term lenders is the best place to start. Unfortunately, not all lenders you’ll find are equal, so being able to determine which to use and which to avoid will help you make a better decision. A reputable lender is one you can trust to treat you fairly as a customer and will work to responsible lending guidelines. The best way to find reputable lenders is by checking if they are an FCA-authorised lender.

The FCA register includes all lenders that are approved by the FCA, which are those that are involved in regulated activities. It will also show you which companies are unauthorised that they have been made aware of. This means that when you do find a lender, you should be able to find them on the FCA register.

Additionally, each lender will have their authorisation number published on their website. If for some reason you cannot find this information, you should carefully consider your next steps. A quick search of the company name on the FCA register will confirm whether it’s a lender best to use, or best to avoid. At QuidMarket, our firm reference number is 677995 under the trading name Stagemount Limited. You should always check the details you find match those published on a lender’s website.

Another good way to determine a lender to use is by checking customer reviews. Many lenders will use review websites such as Trustpilot for verified, trusted reviews from their customers, and will publish these on their website too. These will provide a quick indication of a lender’s reputation before you decide to proceed. Using only reputable, FCA-authorised short-term lenders will ensure you can avoid any potential scams that target borrowers, protecting you and your finances.

Applying for a Short Term Loan

The great thing about most short term loans is that they offer a quick and convenient online application process. This is designed to help you complete an application form and get a decision the same day, so you can receive any approved funds as quickly as possible. Here at QuidMarket, our loan application keeps the process simple, only requiring the essential information we need.

Along with the loan amount and repayment term you want, most short term loans will require you to provide some personal information about you and your current employment. You’ll also need to provide information about your current finances including your income and outgoings. These are required to assess your suitability for a short term loan alongside the information gained from Credit Reference Agencies (CRAs) during a credit check. Both an affordability assessment and a check of your credit history will enable a lender to make an informed lending decision.

Online applications are much quicker because there is no need to wait for paperwork to be sent to you. Instead, you’ll be sent your pre-contract information and loan agreement electronically to sign, speeding up the process considerably. As long as the lender has all the information they require, the whole process can be very quick. You may be expected to provide required documentation during the loan application, usually proof of identity such as a driving licence or passport, as well as proof of address such as a utility bill. You may need to provide the last few months’ bank statements too to enable an affordability assessment. It’s a good idea to have these documents ready before you apply as this may delay your application.

At QuidMarket, we focus on being human, which means we do not rely on automated lending processes like other lenders. We manually review each application we receive alongside credit checks so that we can fully understand your current finances and whether a loan is suitable for you. It also enables us to help those with a poor credit history, unlike other lenders who may reject you automatically just for a low credit score.

Once a lender has fully assessed your application and approved it, they’ll then use your bank details to transfer the loan funds directly into your bank account. They usually will not provide the funds in any other form, such as cash or a cheque. Transferring to your bank account is the fastest and most secure way to provide your loan.

Understanding the Risks and Considerations

Like all borrowing, there are risks involved when taking out a short term loan. You’ll need to carefully consider the loan risks and the potential for high interest rates that some borrowers may charge. Rather than apply for the first loan you find, it’s better to take a considered approach. That way, you’ll find the best short term loans that will match your needs.

If you have poor credit, you’ll need to consider whether borrowing money is the best option. You could potentially impact your credit rating further with any new loan application, especially if you are declined. As no lender can guarantee approval, there is the risk of being declined and your credit score dropping lower. Also, if you choose a lender that cannot provide pre-approval, where a soft search of your credit file is performed to check eligibility, you may have a hard search conducted unnecessarily. At QuidMarket, we provisionally approve applicants before conducting a hard search, ensuring only those that are eligible move onto the next application stage.

Ensuring a loan is sustainable for you is crucial, as while you may be able to afford it currently, you need to ensure this is manageable throughout the loan term. This will avoid missing repayments and potentially being charged for this by some lenders. At QuidMarket, we do not charge for late payment, however, this can still impact your credit rating.

When comparing lender options for short term loans, consider that some may charge higher interest rates than others. If you do not compare your options, you may miss out on the best short term loans available to you and pay more interest than you would ideally like. Use a comparison tool such as Clear and Fair to be able to assess your options fully.

Alternatives to Short Term Loans

Short term loans are not the only options when you need to borrow money, with many different types of credit available.

Personal Loans – if you are seeking to borrow higher amounts than £1,000, a personal loan may give you further options. The higher the value of the loan, the more expensive the repayments can be, so personal loans can provide repayment options for many years on loans up to £25,000 to keep this affordable. Unlike short term loans, personal loans can be used for all sorts of reasons, from buying a new car to home improvements, to even covering other big-ticket items and life events such as a wedding.

Credit Cards – credit cards are a popular form of borrowing as they provide a credit limit you can borrow within. As long as you stay within your agreed credit limit and make at least the minimum repayments each month, you can continue to use a credit card whenever you need to. However, as they are easy to use, if you only make the minimum repayments, they will take much longer to repay in full and the interest charge over time will be high.

Credit Unions – a credit union provides borrowing options for its members. If you join a credit union, they can provide competitive rates of interest on accounts, loans and more. They are owned and controlled by its members, providing an alternative to banks. Not everyone will be eligible to join a credit union and as they are not as large as other lenders, they may have limited borrowing options available.

Overdrafts – as an agreement on your bank account, an overdraft can provide an agreed limit you can go overdrawn by, for example, £500. As long as you stay within your agreed limit and pay off your overdraft amount regularly, you won’t incur additional charges. However, if you go over your agreed limit or go overdrawn without one, you will be charged. It’s important to note a bank may remove an overdraft facility and request any overdrawn amount to be paid in full.

Responsible Borrowing and Repayment

Responsible borrowing is crucial as you do not want to fall into unnecessary financial difficulties if you can help it. Before choosing to borrow money, ask yourself whether this is your only option. Do you have any savings available that can help you instead, or any friends or family that may be able to help you in the short term? Both of these options will help you avoid taking out a new loan agreement unless you really have to.

If you do decide a short term loan is right for you, you need to ensure you can sustain it and ensure repayments are made on time. If this will be difficult for you, you may want to reconsider taking out a loan. Sustaining your loan is important as this will ensure you do not run the risk of defaulting. Avoiding default will ensure your credit rating doesn’t worsen and that you can access credit again in future if you ever need it. If you default or receive anything like a CCJ, this can make borrowing again much harder.

If for any reason you get into difficulties that is unforeseen after taking out a loan, it’s crucial to speak to your lender as soon as possible. Most will be able to discuss a suitable repayment plan with you to avoid the loan defaulting.

The Impact of Short-Term Loans on Credit Scores

Short term loans can have both a positive and negative credit score impact, just like any other form of credit. This will all depend on how you decide to move forward when needing a short term loan and what your current credit rating is. Your credit history will determine which lenders can help and which types of short term loans are most suitable, for example, bad credit loans for those with a low credit rating.

If you make frequent applications for short term loans, this can lead to multiple hard searches of your credit report, which can lower your credit score. Lenders may view multiple loan applications within a short period as a sign of financial instability. It is important to be selective when applying for loans and only proceed with an application if necessary.

Making your repayments on time once you have a loan will demonstrate responsible borrowing behaviour and can positively impact your credit score. Consistently meeting repayments shows lenders that you can manage your debts effectively, which can help to build a positive credit history. The reverse is true when you do not maintain your repayments, as this will negatively impact your current score and show lenders you may struggle to sustain a loan.

If you have existing agreements with outstanding balances, this can increase your credit utilisation, which is the amount of available credit you have that is currently being used. This can negatively impact your credit score if it’s high as it suggests you’re at higher risk of default. Keeping your credit utilisation low will help to maintain a healthy credit score.

Loan Renewals and Extensions

You may come across lenders that offer loan renewals and extensions as part of the agreement on a short term loan. This is where borrowers can extend the repayment period of their existing loans if they need to. For example, if any arrears payments are still due to be paid, the loan could be extended to include these, or if you need to borrow more than the original loan amount agreed, a renewal could allow you to add additional funds to the agreement and extend the term.

Loan renewals can provide help for those who are unable to repay the loan in full by the original due date. However, there may be loan extension fees included to do so. This can also include additional interest charges that will raise the total amount originally borrowed. Having the loan extended also means you have the debt for longer than you originally planned too.

It’s recommended to consider your options if for any reason you need to extend your loan or borrow an additional amount. Not all loan renewals and extensions will be guaranteed approval either, so this is up to the lender’s discretion. They could still decline your request, so carefully consider if this is the right option for you.

Managing Debt and Seeking Financial Advice

It’s easy to forget that whilst short term loans provide quick cash and an ideal solution for many situations, it’s still a form of credit that comes with certain risks. If you are someone that has experienced financial difficulties in the past, you may be cautious about borrowing again. In general, if you can avoid applying for a loan to resolve a short-term position, that should be your first option. Ideally, you will have some form of emergency savings that you can use when the unexpected arises or can afford to cover any emergency bill. However, we know that isn’t always possible for everyone.

If you are seeking help with your finances, you may want to consider financial counselling or contacting one of the many free debt management charities and services. Here are some of the most useful to be aware of that provide information that can help you, whether you are in financial difficulties or are just looking for smart tips in general to help.

StepChange https://www.stepchange.org/

Money Helperhttps://www.moneyhelper.org.uk/en

Citizens Advicehttps://www.citizensadvice.org.uk/

National Debtlinehttps://www.nationaldebtline.org/

Gov.uk Debt Advicehttps://www.gov.uk/debt-advice

We hope you find this short term loans guide useful and informative. If you have any questions, please contact us at QuidMarket.

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