Short term loans

Short term loans and how the borrowing has changed

 

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Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

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Author: Internal Marketing Department

 

Before any customer decides to apply for any finance they have to ask themselves a few things for example do they definitely need that finance, how much do they need to borrow if any, also what type of loan it is that they require as there are always many different ones available including short term loans, payday loans or instalment loans typically for higher amounts and repaid over a longer period. The potential customer should then decide which lender to choose as again there are so many different ones to consider and they each offer different things to them. In this article I am going to turn my attention to the short term lending market and explain in recent times how this way of borrowing has changed. 

When people think about short term loans they immediately think about the single instalment payday loan financial market. To be honest recently this was the only way of quick cash borrowing that was available in this type of market but there are now many different alternatives and some are definitely better then others. A traditional payday loan is a small amount lent by a lender and then repaid over a short period on that borrowers next payday. This kind of loan will normally only be taken out over a period of thirty one days. The interest rate is relatively high so there may be other cheaper options available for people to select when borrowing money. An example of the product would be for someone to apply and then be funded a payday loan for £300.00, the interest rate of this would be around the £72.00 mark (based on £24 interest on each £100 that is borrowed) and then it will have to be repaid in a single transaction so £372.00 is needed to be cleared in full by the customer. If this is not possible and that someone’s disposable income is not that high then their remaining payment options are limited. This could lead to people missing repayments and then defaulting on their loan agreements. Missing repayments will nearly always carry severe consequences for any person involved such as the credit rating being negatively affected and also their balances increasing very quickly.

There can now be short term finance in the way of the instalment loan. This was not the case previously as this loan was normally only offered by Major high street banks or building society’s for large sums of money and then be repaid over long prolonged periods of time up to many years. A mortgage for example is a form of instalment loan. This is not the case as mentioned as there can be a large amount of lenders available for people to choose from that can offer quick same day funding loans but can offer the product over a period of up to a single year and not just a month or a long time period. This offers the customer the chance to control their own loan and select a repayment schedule that suits their financial situation. Before anyone however selects this option people have to be aware that the longer they take a loan out for, the more repayments have to be made meaning there is more paid back overall. It is on this flexibility option where a customer has to select an amount to pay each month that they can definitely afford however they would not want to pay back much more than they originally borrowed, there are some companies that can offer 3, 6 or nine month loans which may provide a useful product as people can borrow the money they need and then repay over a short period and not pay back incredibly high interest and charges. Most loans will also offer the repayment back early option so people and can pay back less in interest if they settle the account in full or they can pay off their debt that little bit quicker if they decide they want to. Any person should not be penalised for this. 

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%