What Are Short Term Loans?

What exactly are short term loans?

So, you’ve decided you may be interested in a short term loan. This can be a scary prospect, especially for a first-time borrower. You may have lots of questions: what is a short term loan? How do I pay it back? What are the benefits of a short term loan in the first place? Well, luckily, we have the answers for you – in this comprehensive guide.


The very first question you’re going to have is: just what is a short term loan?

A short term loan is a small loan that has to be repaid within a period of up to 12 months, decided between yourself and the provider. The provider will also agree upon the amount you borrow.

Short term loans are known as quick fixes when a financial emergency arises, such as the need to settle urgent bills. They are seen as a convenient, easy option due to such a comprehensive process. Especially in today’s age, where everything is done instantaneously online, providers boast that “you can apply for a loan, receive a decision, and have the funds in your bank account within as little as 10 minutes.”

Short term loans are also ideal for new and growing businesses; if you don’t qualify for a bank’s line of credit, you may still be able to secure a one-time short term loan which can be paid off before the year’s up.

There are many different lenders and providers of short term loans, from whom you can apply for loans under the status of either a) personal loans or b) business loans, depending on your financial status and the purpose of the loan.

Are There Different Types?

The different types of short term loan

Short term loans are not one-size-fits-all, and as such, there are a few different types of loans that are flexibly suited to your specific needs! These include the following:

1) Payday loans

Payday loans, as the name would imply, are designed to lend you immediate money with the precondition that it will be paid back in full on your next payday (inclusive of interest). Whilst some lenders will allow greater flexibility, meaning you can repay over several months, this does mean the interest charged will be higher – so this is something to be aware of.

Significantly, the cost of payday loans is regulated by law, in accordance with the FCA (Financial Conduct Authority). These laws regulate the amount of interest and fees you can be charged. So, for example, if you take out a loan for 30 days, you will pay no more than £24 per £100 borrowed in fees/charges, and if you aren’t able to repay the loan on time, you can only be charged a fee £15 + outstanding interest.

Generally, this overall cap means that you won’t ever pay back more than twice what you initially borrowed.

However, don’t be tricked! Lenders can tempt you with their advertising, but it’s important to remember that a payday loan is not the right choice for you if:

– You are using it to pay off existing loans
– You already have a payday loan
– You are unsure you can pay it back in time
– You aren’t using the money for necessities… are you sure that new pair of shoes can’t wait?

2) Doorstep loans

Doorstep loans are also aptly named… the cash is delivered to you at home, in person. Before this, however, you’ll need to complete an in-house affordability assessment with a customer representative.

3) Online/ instalment loans

Like many short term loans, online loans are generally tailored towards people with lower credit ratings who want to make smaller requests for lower amounts. The difference, however, is that this loan can be paid on a weekly or monthly basis for up to a year. Payments are taken straight from your account, and you’re unable to apply in person (as you would with a doorstep loan).

4) Credit union loans

Credit union loans are available to members of particular credit union organisations. Per the organisation, terms and conditions can vary. The advantage of this type of loan is that many providers offer reduced fees, but this generally also means the borrowing rates are limited. Payments are taken from your bank monthly until the loan and its corresponding interest is paid back in full.

Whichever loan you opt for, keep in mind that you need to estimate what you can afford and what you’ll be expected to pay, over what time period. And ALWAYS read the t&cs!


Decided you want to take out a short term loan? The next step is how. Thankfully, we’ve compiled a handy step-by-step guide:

How do I take out a short term loan

1) Do your research and check your eligibility

Before you consider the loan, ask yourself what you need it for and what other options you may have. Whilst short term loans are incredibly convenient; they also carry with them the weight of responsibly paying your loan back – with interest. It’s therefore key to do all your thorough research beforehand, compare different websites and providers, and see which type of loan would work for you.

The next thing after this is to check your eligibility. Most loan providers will have some criteria for the amount you want to borrow, the category of your loan, and how long you will pay it back over – check the fine print, especially APR rates.

For those of you not in the know, APR rates are “Annual Percentage Rates”, aka the standardised rate used to help borrowers understand the cost of borrowing. APR takes into account any additional charges and rates of interest on your loan. As a result, some will be higher than others, and the rate will generally increase proportionally to how much you want to borrow.

2) Pick your provider

The next step is to pick the lender you’ll go with. There is a huge amount of lenders just one internet search away, so it’s key to decide how much you’d want to borrow, how long for, and compare lenders’ different interest rates. Thankfully, you don’t have to do this all yourself – there are lots of loan eligibility checkers and various websites that will offer you free advice.

Another thing to consider when you’re picking your provider is considering which one offers the best deal for your long term goals. Short term loans, and borrowing in general, can have a hefty impact on your credit score, so you’ll need to keep this in mind. For example, if you apply immediately for a short term loan and are subsequently denied, this could slightly reduce your credit score… and multiple rejections could harm it even further. Here are some key things you need to check when picking a provider:

– Can the payment schedule be changed?
– Is the interest rate fixed?
– Is there an option for instalments/ staggered payments?

Finally, it’s always a good idea to check customer satisfaction; read those reviews! Have other people had a good experience? It may be work prioritising the loan product first and then checking the lender’s reputability afterwards.

3) Go to their website, enter your requirements

Following on from that last step, when you compare different providers, it’s usually a good idea to enter your requirements on each one and see what rates and circumstances are ultimately offered to you.

Once you’ve checked for hidden charges, APR and interest, and other potential caveats, you’re good to go! Hit that apply button.

4) Receive your money

Nothing complicated here… sit back and wait for your loan request to be accepted!

5) Pay it back before the agreed upon date

This is the key part and is often what deters people from applying for a short term loan in the first place. So you must ensure before applying that you will be able to pay back the loan, with any agreed interest, by the date given.

When Do I Start Paying Back?

This will be agreed upon by yourself and the lender when you initially apply for your loan. Here, you will agree whether you pay the loan back in full or in instalments. You will also decide on the best date(s) to make your repayment. Once all of this is sorted, it couldn’t be simpler – just make sure you make those payments.

Can I Pay the Loan Off Early?

If you’re on top of your finances enough to be able to settle your loan early (generally before the last two weeks of the term), there is a chance you could receive a rebate of interest – which reduces the overall outstanding balance due. This essentially means you’ll pay less interest than was agreed upon upfront.

What Happens If I Miss a Payment?

1) Late fees

If you miss a loan payment, there’s a good chance you’ll be charged a late fee. Some providers do not take further action if you’ve only missed a single payment, but it’s good to be aware of this.

2) Longer repayment time

If and when a payment is missed, the next payment is generally applied to the oldest amount due before you missed the payment. This means that the chance to reduce overall interest and capital is missed; it will therefore take you longer to pay the loan.

3) Interest build-up

As well as a longer repayment time, a missed payment can easily lead to a higher rate of interest to pay overall. If you stop paying a loan altogether or repeatedly miss payments, you’ll owe more money due to the build-up of penalties, late charges, and increased interest.

4) Credit scores

Failure to repay a loan as per the agreed terms will almost certainly result in a damaged credit record and lower credit scores. Lenders have the right to inform CRAs (credit reference agencies) about your missed payments.

Is it right for me?

To summarise this comprehensive guide, we’ll give you a quick run-through of the benefits, caveats, dos and don’ts of short term loans.

DON’T opt for a short term loan if you are using it to solve larger, longer-term debt issues.

DO opt for a short term loan if you need a quick cash flow fix to last you as an immediate solution. Make sure you borrow only what you need, you work out the interest rates, and you know how long you have to make repayments.


Benefits of short term loans

– There are many different types of short term loans to suit different financial needs.
– There are numerous lenders and providers available at the click of a button, and they all have handy advice services.
– You can run your needs through an eligibility checker before deciding whether you even need a loan, whether you’re eligible for one, and which one is right for you.
– If you’re on top of your repayments, short term loans can be a straightforward, efficient way for you to resolve any short term cash flow issues.


– If you don’t check the terms and conditions carefully, you can be lumped with hidden default fees.
– If you’re unsure you’ll be able to keep on top of payments, you can be charged with increasing rates of interest.
– The act of applying for a short term loan and its subsequent outcomes can affect your credit score from the offset, and you’ll definitely take a hit if you fall behind on payments.
– You can easily be tricked into complicated and hard-to-repay agreements if you don’t take your time reading terms and conditions.

We hope this short guide has been handy and comprehensive and that you’re now in a better position to decide whether a short term loan would work for you. Always read the terms and conditions, and happy hunting!