Different Types of Short Term Loans in UK

Are you stuck in a financial crisis? Do you need urgent cash? If yes, then you must be probably thinking about borrowing a short term loan, isn’t it? And why not? It is one of the best credit options in the lending industry. Backed by the positive responses of more than thousands of borrowers and their easy availability, short term loans in UK have gained a lot of popularity in just a small period of time.

One of the popular variants of short term loans is payday loans. But the borrowers are feeling a need for a short term loan which has a longer repayment period, because the 30 days repayment period of payday loans is not enough sometimes for many borrowers who then end up rolling over or defaulting the loan. Thus, the need has shifted to other types of short term loans, like bridging loans, instalment loans, and the others. Borrowers started looking for such loans over the payday loans because these new alternatives carried a longer period, like 3 to 6 months. The loan amount remains the same in such cases, but it gets divided into instalments over a few months, so it becomes easier to pay off the loan in parts rather than paying them all at a time, which is the case with payday loans.

Short term credits are popular even with small businesses or individual entrepreneurs. They allow you to take care of unforeseen expenses that may need to be dealt with immediately. We will discuss in this article the benefits of short term loans to small businesses and new entrepreneurs, and then we will ponder over the variants of short term loans in UK.

Let us first talk about the advantages that businesses have if they borrow short term loans, and what are they used for.

How small businesses can benefit from short term loans

·         In case of new or small businesses, short term loans make the functioning smoother by helping in the daily expenses. Funds are very necessary at the start of a new business, and short term loans come in when they are most needed, to add to the business capital.

·         Small businesses might sometimes run out of production materials and stocks because of not being able to afford them. Short term loans enable the businesses to keep running at such times to avoid loss.

·         When a small business runs out of funds temporarily, there is a danger of it going out of business or losing customers. Short term loans make sure that the production never stops and it helps you keep the business going until you start receiving the cash flow again.

·         Small businesses sometimes need to expand owing to a large demand of their products, and lack of cash at such times can hinder the growth of your business. Short term loans are exactly what you need to expand your business little by little.

Different types of short term credit

Overdraft: This is a popular small term loan, particularly for individuals. Technically, overdraft allows you to borrow an amount that exceeds the current balance of your account, on the condition that your account should hold a positive balance every month on Friday. This type of credit is usually given out to the borrowers who have been showcasing a good balance in their bank account and good banking practices. Overdraft carries a relatively lower interest rate tag than the other type of short term credit, and this is what makes it so popular an option.

Instalment Credit: This is a rising trend in the finance market and is growing in popularity due to its unique features and ease of use. These loans are for those who want to purchase expensive consumer products like a TV, AC or a refrigerator, or want to use some cash for paying off urgent bills. These loans are to be paid back in monthly instalments and the rate of interest that is calculated on the amount is fixed for the whole term of the loan, irrespective of any changes that might occur in the market rate. Consumer product sellers are using this instalment type of credit to increase the sales of their products. For example, you buy a TV by giving a small amount, and then you pay the rest every month in EMIs. Instalment loans are also given out in a similar form like payday loans, but the repayment is spread over 6 months, so it’s like taking a payday loan but paying it back with ease in easy monthly instalments.

Trade Credit: Small scale businesses are the ones who typically are seen using this type of loan. The process works like this- the raw material or product suppliers give the products to small businesses on credit, and then after the business sells the product and earns money, they pay off the supplier. The term for such credit is around 30 to 90 days; the term depends on the business type.          

The above given credit advances are the most popular types of short term loans in UK and are beneficial to the individuals as well as small businesses. They can come very useful at times, but the borrower must always be deeply aware of all the facts and consequences of these loans. Payday loans have ruled the loan market for long and these short term loans exhibit better features for the borrowers, but they can cause the borrower a financial crisis too if not used carefully. Borrowing a loan may be easy, but dealing with the high interest rates and repayment period can be stressing and may cause a lot of new borrowers to default on their loans. This can cause a great deal of debt and can also enter your name in the blacklist of bad credit records, which will prevent you from securing any further loans. So make sure you act responsibly and use the loans carefully.