To put it simply, a short term loan is the type of loan where you borrow a set amount and pay back that amount plus interest in less than a year. It is not like a bank loan, in that you don’t pay a short-term loan off over years and it often comes with a higher APR. The amount you borrow is usually low, starting from as little as £50, and going up to around £2000 or higher in some cases.
A short term loan may be appropriate for people who all of a sudden find themselves with a big expense. It may be an expense they feel can’t avoid, like a home or car repair. They might also be helpful for people who don’t get regular work. They need something to tide them over until their next pay cheque. Once paid, they can pay back the loan and the interest.
Usually, this type of borrowing is what is called an unsecured loan. This means you aren’t borrowing against something you already own such as a car. Should you not be able to pay a loan back, the items which you secured the loan against will not be repossessed as payment.
There are many different shapes and sizes of short term loan, but there are a few varieties that dominate the market:
Once you complete an application, and you and the lender approves you in principle, an agent will come and visit you at home to discuss the loan. The agent will complete an assessment of affordability to understand whether you can afford to borrow the amount. If the lender accepts you, they will give you the loan in cash. You repay the loan in instalments in cash every week.
Typically, they are paid back in one lump sum when the borrower gets their pay packet. Certain high street lenders offer these. You can visit a branch to receive your loan. Repayments are taken out of your bank account, often automatically. This is called a continuous payment authority.
The loan application and approval process are all done online and you pay back over several months. Usually you make repayments for no longer than a year. Online loans can also get the money into your bank account quickly. Sometimes lenders send money within minutes of it being approved.