When you think of a financial institution, you think of a bank. At the bank, you can find all manner of financial products, services and guidance. However, one of the few things you will seldom see a bank offer is a short term loan.

A bank can offer a similar sort of thing in the form of an overdraft on your account. But, to get that, you must first have an account with that bank, and overdrafts are only offered to those who have a good relationship with the bank. This means if you’re in a situation where you need to take out a loan, but you don’t have a great credit score, your options for getting a short term loan are minimal.

What Actually Is a Short Term Loan?

As the name implies, a short-term loan is a loan that is usually taken out for a relatively small amount of money due to be repaid over a relatively small amount of time. There are no hard and fast limits, but people rarely borrow more than £1000 or for terms of longer than three months if they’re taking out a short term loan. They’re also sometimes called payday loans or specifically bad credit loans.

Why Would You Need a Short Term Loan?

Short term loans are there for when you need a relatively small cash injection to get you through a difficult financial period. This can be for several reasons – an unexpected bill has cropped up, energy prices have gone up, your car or a white good has broken down, or you were not paid as much as you were expecting from your job. Whatever the reason, you can find yourself simply running out of money.

The reason they’re often called “payday” loans is the idea is that you take out the loan for now, and then you pay it back on your next payday – this is a bit of an exaggeration compared to the reality of how most people use these loans. But it helps you to understand exactly what their purpose is, and generally speaking, why they’re so popular – they give you cash in a hurry.

What Do You Need to Know About Them?

A payday loan is characterised as having unusually high interest charges. That’s usually true, but the idea behind them is that you take out the loan and then pay it back as quickly as possible. So while those interest charges may indeed be high when you look at them in isolation, in reality, by the time you have paid the loan back, you’ve paid less than you would have with an equivalent overdraft.

Short term loans are popular because they are quick and relatively easy – they are designed to get you the money you need in a hurry. That means you can usually apply for one at any time of the day, and the application will be reasonably quick and simple. Depending on when you make the application, you will usually be paid quickly as well. Sometimes you can have the money in your account almost instantly.

What Other Loans Do Banks Actually Offer?

That is not to say, of course, that banks don’t offer loans. So, naturally, they offer many different types of loans. However, the issue with the loans that banks offer is that they are for much larger amounts of money and spread over longer repayment plans. So rather than you needing to borrow £500 and pay it back over the course of two months, they’re geared to borrowing £5000 and repaying over two years.

Not only does this mean that bank loans are much more cumbersome to apply for and unsuitable for those who need a short term cash injection, but it also considerably limits the likelihood of you even being successful in your application. A bank wants to make sure they’re lending only to a person who has a strong chance of actually paying that loan back – that means you usually need a good credit rating. They will dig deep into your financial history, and you will also usually need to have a reasonably good standing with the bank to be successful.

If you need a short term cash injection, you’re unlikely to find the right loan for you offered by a bank.

So Where Do You Actually Find It?

Knowing you can’t find a short term loan at the bank isn’t too helpful, however, so of course, you’ll want to know where you CAN get a short term loan – and the simple answer is online. Over the last few years, there has been an explosion in the number of lenders offering short term loans to customers via online applications. They’re quick and easy to apply for, which is why so many people choose them.

If you’re in the middle of an unexpected financial emergency, you don’t want to have a sit-down meeting at the bank while they pour over your financial history. Instead, you want to make your application, get accepted, and get the money you need as soon as possible. That’s exactly what online lenders offer – and they’re usually broken up into a mix of direct lenders and brokers, depending on who you choose.

What’s a Direct Lender?

A direct lender is, as the name implies, an organisation that lends money directly. When you apply, you make your application directly to them, and they will consider it. If they decide to lend to you, they will pay you the money directly from their own company.

What Are the Benefits of Direct Lenders?

With a direct lender, everything is handled “in house” – that means that generally speaking, you will be able to get your application processed and approved much faster. You have only dealt with one company, and so when they approve the loan, you can be paid as soon as possible. Many direct lenders boast of being able to have the money in your account almost instantly. It’s also much easier to keep track of your communication with them, and you will be provided with an online account to monitor the status of your current loan.

What Is a Broker?

A broker is an aggregate service for loans, where you make one application, but numerous lenders examine that application. Therefore, the broker will have multiple partners to present your loan application, and they will then return quotes to provide that loan.

What Are the Benefits of Brokers?

With a broker, you have access to various lenders, but you only need to make one application. The application may take a little longer, but you will get many different quotes back. This means you might be able to find yourself a better deal – one with lower interest rates or something that allows you more generous repayment terms. To get this with direct lenders, you will need to make each application yourself and then collate the quotes you get back – a broker will do all the hard work for you. Again, this can mean you can get a better deal on your loan.

Which Is Going to Be Right for You?

The simple answer is that it depends. It depends on whether or not you want to have your loan immediately or whether you can afford to invest a little more time to get a better deal. If you need the money right now, an online direct lender will usually get your application approved and the money paid into your account far quicker. If you have just a little more time on your side, however, and you want to get the most generous terms possible, you will likely have much better luck using a brokerage service to get several different short term loan offers at once.

What Should You Do Before Applying?

Whichever route you take when applying for a short term loan, whether you choose a direct lender or a broker, you must know exactly how much money you need to borrow. Take a look at your current situation and work out how much it will take to see you getting back on your feet securely. It’s so easy to get overwhelmed when you’re in the process of applying that you end up borrowing more than you need.

It’s also essential that you understand implicitly how much you can afford to pay. Short term loans are designed to help you get out of trouble, but they are still a loan, and they can count negatively against your financial record if you fall behind with payments. So, calculate your absolute minimum figure that you know you will be able to afford to pay and use that – you can always pay off more when and if you’re able.

If you need a short term loan, you’re unlikely to find it at the bank. Instead, choose an online broker or direct lender for the best deal.