A Beginner’s Guide To Short Term Loans in UK

In the good old times and still in the present, secured as well as personal loans have been targeting borrowers who are required to repay the loan over as little as 1 year to as far as 25 years, the period of loan depending upon the availability and the size of the loan. The recent few years, however, have been witnessing a massive increase in the ready availability of such loans which have repayment periods ranging less than a year, and in a few cases, even as less as a month!

In this article, we will discuss about the features of short term loans and also their downfalls which you must be aware of before borrowing short term loans in UK.

Short term loans are highly flexible

This feature of short term loans is one of the major reasons why it is so popular nowadays among the borrowers in the UK finance market. Short term loans in UK offer the borrowers very flexible options to meet their short term financial needs. Once your profile is qualified for the loan and you are eligible as well as can afford the loan without falling into a crisis, the lenders give you many different borrowing plans to choose from, and each of them differ in terms of uses. You can choose the best package for your situational need or can even ask for a customized loan option.

Payday loans and overdrafts are the two most popular types of short term loans in UK. In these cases, the lenders assess the application of the borrower and work out an agreeable amount that they think will match the financial affordability of the borrower. But after this, all the control is in the borrower’s hands. They have the option to decrease the limit of their overdraft, ask for instalment options, or repay a loan with just a click or an easy phone call.

Short term loans are quick to get

Another big advantage for the borrowers of the short term loans in the finance market is that after applying for a loan, it hardly takes more than a few hours to get their hands on the loan amount. In case of payday loans, if your documents and details are in the correct manner and if you have a good credit record along with having a good relation with the lender, then the loan gets approved within minutes and it takes less than an hour for the money to get transferred into your bank account Thanks to the advancement in technology, lenders now provide easy options to apply and manage loans. Now you can apply for a loan from your smartphone, sign loan contracts online, and access the loans at any hour of the day.

The disadvantage of this speedy availability of loans is that borrowers do not take time to analyse their financial situation and check whether they can afford the loan or not. Make sure that you can pay back the loan on time, and borrow only the amount which you actually require.

Short Term Loans Carry Small Loan Sizes

Short term loans offer loans that are usually less than £1,000 in amount, and even lesser for new customers. Once you become a repeat and loyal customer with a lender, then you are allowed to borrow up to £1,500.

But the small size of short term loans makes it favourable to flexibility and speed as mentioned before, hence the loans are readily available. But if you are looking for a larger loan amount for a short term, then you should look for logbook lending.

Logbook lending requires you to keep a collateral. Say you own a car that is worth £50,000. So if you go for logbook lending against your car as the collateral, you could secure a logbook loan of around £25,000. But still, logbook lending is not as much popular as overdrafts and payday loans.

Short term loans are expensive

This is one of the major drawbacks of short term loans in UK which has attracted a lot of criticism right from its existence. Short term loans carry a huge interest rate and also charge huge penalties.

The lenders defend themselves by stating that as they are lending a small amount of money for a very short period of time, they need to keep a relatively higher rate of interest to earn profits, or else the business won’t run. The Financial Conduct Authority, keeping in mind the welfare of the borrowers and business of the lenders, has imposed several regulations and caps on the short term loans and have made code of conduct for the lenders to strictly follow.

Charges of short term loans are high too

The borrowers need to research well about the charges, fees and penalties before they take out a short term loan. If your loan account falls into arrears, then the lenders charge you heavy fees. However, due to the short term and small amount of the loan, the fees actually are a lot higher percentage of the actual amount that you borrowed.

Another much-criticized factor is that the payday lenders allow the borrowers to flip or rollover the loan to the next month for an extra fee, which adds to the total cost of the loan. The payday lenders practice of allowing borrowers to ‘rollover’ their loan for an additional month, for a fee, has also attracted criticism and tighter regulation governing the ability of lenders to do this.

Final Words

Short term loans in UK, despite being heavily criticized, have been a major success in the lending industry. The reason behind this is their easy availability, and this helps the borrowers who need urgent credit to get out of financial troubles and emergencies. Thus, short term loans are very useful, but they are very expensive too. So you must always borrow a short term loan only if it is really needed and make sure you pay it back on time to avoid higher charges and debt.