How do Short-Term Loans Work?

Short term loans, they are the best option for people looking to rectify a minor cash flow problem. They are unlike a traditional bank loan, which is usually paid back over several years. Short term loans are designed to be paid back often within several months. So, how do short term loans work? Let’s take a look.

Practical Uses

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

The Process

Agree an amount you can afford to borrow with your chosen lender, which will include the interest rate and total amount you are expected to pay back. Accept the terms to pay back the loan in full. This is whether it is one payment or several. 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, you receive your loan. You begin making repayments on the agreed date until the loan is repaid in full.

Holistic Lending

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. This can lead to late payment fees which can be steep. And, if you do create a situation where you struggle to make a repayment, always contact your lender to try to come to an arrangement. Here are some of the key differences between the short-term loan types on the market. Do research so that you get the best deal possible for you. If you need to know how do short term loans work, examine the different varieties in a crowded market.

Payday Loans

As the name suggests, lenders designed payday loans to give you the money you need with a view to you paying it back in full on your next payday. This includes any interest charged. However, some payday lenders allow you to spread the payments over a few months. This will mean incurring more 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 cash will be delivered 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 rating. What’s more, such people often 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, with payments taken straight from your account. You’re also unable to apply face to face, unlike a doorstep loan.