Moolr.co.uk | Short term loans

How does a short term loan work?

A short term loan can provide a solution when you are experience minor cash flow problems. Unlike a traditional bank loan, which borrowers tend to repay over several years, lenders designed short term loans for people to pay off often within several months. Let’s look at how does a short term loan work.

How does a short term loan work? Uses

Borrowers can use them for emergencies, such as car repairs or a broken boiler. There are several types of short term loans on the market. However, in most cases, the main steps are the same:

  • You agree an amount you can afford to borrow with your chosen lender. This will include the interest rate and total amount they expect you to pay back.
  • You agree on a term to pay the loan back in full, whether it is one payment or several.
  • You agree with the lender the best date for you to make repayments.
  • The lender will usually carry out a credit check to assess your financial history.
  • If your application is successful, the lender will send the loan. Funds are often sent to you within a day.
  • You begin making payments on the agreed date until the you remove the debt in full.

Sensible Borrowing

Whichever type of short term loan you decide to take, we recommend that you only borrow what you can afford. It is essential you avoid missing payments. Why? Well, this can lead to late payment fees which can be steep. And, if you do find yourself in a situation where you are struggling to make a repayment, always contact your lender. Talk to them. Try to come to an arrangement. Here are some of the key differences between the short term loan types on the market.

How does a short term loan work? Payday Loans

As the name suggests, a payday loan is designed to give you the money you need. It is loaned to you with a view to paying it back in full on your next payday. This figure includes any interest charged. However, some payday lenders will allow you to spread the payments over a few months, This can be handy, but will mean incurring more in interest charges.

Doorstep loans

Once a creditor accepts you for a doorstep loan, the cash will be delivered to your home in person. The acceptance process will usually involve completing an affordability assessment in your home. This will occur with a customer representative, 

How does a short term loan work? Instalment loans

Much like other types of short term loan, instalment loans suit people with lower credit ratings. They target those who want to borrow low amounts. The main difference with this type of loan is that borrowers can usually pay it off each week or month for up to a year. Lenders take payments straight from your account. You are also unable to apply face to face. Thus, this differs from something like a doorstep loan.

How does a short term loan work? Credit Union Loans

As credit union organisations are all unique, their terms and conditions can vary. Credit union loans are typically only open to members. However, they often offer capped borrowing rates and reduced fees and charges. The union usually takes payments  automatically from your bank account on a monthly basis. This process continues until the loan is paid in full with interest.

Conclusion

In conclusion, whichever type of short term loan you choose, it is important to work out exactly what you can afford and understand the full amount you are expected to pay, as well as reading the terms and conditions in full. Short term loans should only be used to assist with minor, more immediate cash flow problems, and shouldn’t be considered to assist with larger, long term debt issues.

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