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What are the types of short term loan available to you? Find out more about these flexible forms of finance and how they can help you out when you find yourself short of cash.
Short term loans help plug a gap in your finances when there’s been an unexpected bill or expense.
If you’ve been hit by…
• an unexpected car or household repair bill,
• your wages arriving late, or
• having to pay for medical treatment
…then short term loans give you quick access to the money you need to help make ends meet.
There are four main types of short term credit that may be available to you and here’s CashLady’s handy guide to choosing the right one.
Payday loans (UK)
Payday loans allow you to borrow up to a few hundred pounds which you pay back plus interest all in one go, normally 30-35 days later.
For every £100 you borrow, you’ll pay back no more than £24 in interest as long as you make the repayment on the agreed date and in full.
Lenders also must never try to make you pay more in interest and charges than the amount of the original loan. So, if you borrow £200, you should never pay back more than £400 in total.
Applying for a payday loan is simple. All you need to do is contact a lender direct or contact CashLady and give over the following information:
• How old you are (you must be 18 or over)
• Your UK bank account details
• Your debit card details
• How much you earn every month
• What are your expenses every month
• The name of your employer
• Confirmation that you’re a UK resident.
Once you’ve done that, you’ll either get an instant decision (yes or no) or it will be referred. When it’s referred, they’re going to ask you for more information and when they have what they need, they make their minds up quickly.
If it’s a yes, the payday loan provider will often be able to pay the money into your bank account within the hour – it’s that quick.
Short term loans (UK)
For short term loans, think payday loans but paid back over a longer period.
The information needed to apply for short term credit is virtually identical to the information needed for a payday loan. They’ll want to know you can pay back the money when it’s due.
Short term loans are becoming more and more popular in the UK because of one main reason – monthly repayments are lower than paying everything off all in one go like you do with a payday loan.
Let’s say you borrow £400 from a payday loan provider. The maximum amount of interest you can be charged (over 30 days) is £96 if you pay everything back on the due date.
So, that means that up to £496 will come out of your bank account on one day when you settle the loan.
If you spread out that £400 over 6 months though, the picture looks very different. Let’s take an example of a short term lender charging their loans at 1,186% APR.
Instead of paying £496 all in one go, you’d make 6 monthly repayments of up to £114.13. Repaying up to £114.13 a month may be more manageable for many borrowers than repaying up to £496 all at once.
It does mean though that, over the course of the loan, it’s more expensive. The maximum total amount repayable would be £684.78 if you make each of the six payments on time and in full.
Remember that’s just an example and what you actually pay will depend on the interest rate you agree with your short term credit provider.
What happens if I cannot pay my short term loan or payday loan back?
You should always make certain that you make your repayments when they’re due and for the agreed amount.
If you do fall behind, there are certain rules that short term credit providers and payday loan companies have to stick to.
If they place a default fee on you, it can’t be any higher than £15. They can continue to charge interest on what you owe if you fall behind but it must never be at a higher interest rate than the loan was agreed at.
And remember, whether you default or not, you can never be asked to pay more in interest and charges than the amount of the loan you took out.
Revolving credit (UK) / Line of Credit
Revolving credit is a new type of consumer short term financing product to hit the UK.
It’s like another form of an overdraft you have at your bank in that:
• it’s best for emergencies – it’s never good to rely on overdrafts for everyday expenses,
• There’s interest payable depending how far you are into your facility and
• If you’re not using it, there’s nothing to pay.
According to Which? (1), unauthorised bank and building society overdrafts are more expensive than payday loans and revolving credit facilities. Unauthorised overdrafts are when you go past your agreed overdraft limit with your bank.
If you borrow £100 for 28 days past your overdraft limit with Santander, Which says you’ll pay £67 in fees. With RBS, it’s even higher at £90.
If you’re in unauthorised overdraft a lot of the time, a revolving credit facility could save you money on the fees you pay your bank.
When you apply for revolving credit, you’re given a limit. You can spend up to that limit. Most revolving credit providers will collect the interest from you every month plus a small part of the remaining balance.
Logbook loans (UK)
Logbook loan providers offer to lend you money using your car as collateral. So, if you can’t keep up with your repayments, the log book loan company will take possession of your car.
Most logbook loan providers have a minimum repayment term of 12 months making these a form of short term credit. There is one logbook loan company that offers a minimum of six months.
You can apply to borrow up to 70% of your car’s value. Interest rates are often much lower than other short term loan providers and many lenders can provide you with the cash on the same day.
Some offer no early repayment penalties while others charge for sending letters and making phone calls if you fall behind with payments. As ever, Cashlady’s advice is to do your own research before applying so there are no unwelcome surprises later on.
A word of warning – if your car is repossessed, you may still have to pay money to the lender once the car has been sold on because the amount you still owe may be more than the lender managed to sell your old car for.
Types of short term loan
There’s plenty more you can read about the different types of short term loans available on CashLady.
It may be also useful to read what short term loans are and consider whether or not it is a right financial product for you. Alternatively, you can read the article about how to avoid short term loans.