Unlike a traditional bank loan, which borrowers usually pay back over several years, lenders designed the short-term loan for people to repay quicker and deal with immediate issues. Often borrowers will do this within several months. You can use them for emergencies, such as car repairs or a broken boiler. There are several types of short-term loans on the market. In most cases the main steps are the same. Moolr have looked at the question of how do short term loans work?
A Short Term Loan Checklist
- You agree an amount you can afford to borrow with your chosen lender. This will include the interest rate and total amount lenders say you need to pay back.
- The borrower agrees on a term to pay the loan back in full. and this is the case whether it’s 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 and your trustworthiness.
- If your application is successful, the lender sends the funds. What’s more, money is often sent within a day.
- You begin making repayments on the agreed date until the loan is repaid in full.
- Whichever type of short-term loan you decide to take, we always recommend that you only borrow what you can afford. Always avoid missing payments. Missing payments 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. Attempt to come to an arrangement. Here are some of the key differences between the short-term loan types on the market:
How do short term loans work? – Payday Loans
As the name suggests, lenders designed payday loans to give you the money you need. This is with a view to you paying it back in full on your next payday, including any interest charged. However, some payday lenders will allow you to spread the payments over a few months, which will mean incurring more in interest charges.
Doorstep Loans
Once a lender accepts you for a doorstep loan, which will usually involve completing an affordability assessment in your home with a customer representative, the the lender delivers the cash to your home in person.
Online/Instalment Loans
Much like other types of short term loan, online/instalment loans are typically suited to people with lower credit ratings. People who want to borrow low amounts. The main difference with this type of loan is that it can usually be paid each week or month for up to a year. The lender takes payments straight from your account. You are also unable to apply face to face, unlike a doorstep loan.
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 lender takes payments automatically from your bank account on a monthly basis until you have paid the loan in full with interest.
Whichever type of short term loan you choose, its important to work out exactly what you can afford. What’s more, you must understand the full amount you expect to repay, as well as reading the terms and conditions in full. you should only use short term loans to assist with minor, more immediate cash flow problems. Do not consider them in order to assist with larger, long term debt issues.
