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Short term loans

What is a short term loan?

A short term loan is a loan repaid over less than 12 months. Loans repaid over 3-6 months with an APR over 99.9% are titled high-cost short-term loans. Any loan repaid over less than 3 months is often referred to as a 'payday loan'. As the title suggests, payday loans are designed to be repaid on or around your payday.

When should I use a short term loan?

Short term loans are designed for use in an emergency or to deal with an unexpected cost, such as a boiler breakdown or car repair. Short term loans are not designed to be relied upon for longer term borrowing or to fund a night out.

How much does a short term loan cost?

What instantly screams at you when applying for a short term loan is the extremely high annual percentage rate (APR) advertised by the majority of lenders. This is often north of 1000% and is considerably higher than the ~3% good credit loans offered by banks and supermarkets.

But will I actually pay 1000% in interest?

No. The financial conduct authority (FCA) has recently brought in legislation to cap the amount high-cost short-term lenders can charge in interest . This is capped at 0.8% interest per day or 100% of the amount borrowed. There is also a £15 cap on default fees.

So for example. If you borrow £100, the maximum you can be charged in interest is £100.

So why advertise such a high APR?

Because if you were to borrow this type of product over a year "cap-free" then this is the APR you would receive. APR was designed to be used to as a point of comparison for financial products but when it comes to short term loans APR isn't overly useful. We think it's of more use to compare short term loans by the total amount you would repay, otherwise known as the total amount repayable.

Comparing short term loans

By default, we have ordered the above table by total amount repayable (TAP) as this will give you an accurate idea of what you would actually repay if you were to be accepted by each lender. We also have included the monthly cost of each loan, as well as their APR (which as discussed above isn't overly useful but needs to be here by law).

What is OPTIOSCORE?

OPTIOSCORE is our own unique consumer friendliness rating. This takes into account a number of factors from price to customer experience. OPTIOSCORE provides a great way to compare all aspects of a loan and its provider simply and quickly. The cheapest options may not necessarily be the best option for you.

Will I get accepted?

Each lender will have varying acceptance criteria and the decision on whether or not they will accept your application lies solely in their hands. It is crucial when comparing your options that you consider lender’s acceptance criteria and ensure you fit the bill before you apply. By not doing so you risk being declined, which apart from the annoyance will harm your credit file and reduce your chances of being accepted elsewhere. If you're in any doubt then don't apply. You can check your chances of acceptance with each lender by completing a Choose Wisely Eligibility Check. Still unsure? In-depth information on each provider featured on Choose Wisely can be found in our loans product library.

What are the alternatives?

If you're looking to borrow and repay over a short period of time there are alternatives to using a loan. A credit card is a genuine contender as if you pay off your balance each month you’ll not pay any interest. This will require a certain level of discipline to stay on top of your balance but in return, you'll receive a considerably cheaper form of short-term borrowing. The key with a credit card is not to get into the habit of only making the minimum payments each month as you’ll end up paying a lot in interest over time.

Considering a credit card? Compare your options using our credit card comparison table.

Another option for quick cash is to ask friends or family. This isn't always easy but will most likely be a cheaper alternative to borrowing from a commercial lender. Just be sure to plan out your repayments and discuss what would happen if things went wrong before you go ahead. Even the closest relationships can turn sour when money is involved, so it’s vital you discuss this thoroughly before committing to an agreement.

Short term loans for bad credit

Fear not, if you have poor credit you do have options and there are deals to be had. In regards to short-term borrowing solutions, there are a number of UK short term loan providers that consider applicants with poor credit history. If you do have poor credit it’s even more vital to compare your options before you apply to prevent any further harm to your credit file and your chance of acceptance.

If the world of credit files and credit scores is a step into the unknown, our guide to understanding your credit file will get you up to speed. You can access your credit file for free with a number of credit reference companies such as

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk