Short-term loans are loans with a repayment period of up to 24 months. They’re usually unsecured, meaning you won’t have to put your property as security or collateral. Anything you put up as collateral can be taken by a lender if you can’t repay the loan. When you can, it’s always better to borrow money from a lender without putting up security.
Short-term loans are for between a period of 2 to 24 months and for smaller sums ranging between £250 and £10,000.
When you take out a loan, interest is charged on the money you take out.
Interest is a fee for borrowing cash and it’s charged at a percentage rate of the money you borrow – the more money you borrow, the more interest you pay.
Payday loans and short-term loans are capped at up to 0.8% per day. That means that, for every £100 you borrow, the maximum interest you can be charged is 80p a day or £24.00 over 30 days.
You’ll often see loans advertised at xxx% ‘APR representative.’
The Annual Percentage Rate (APR) is the percentage interest owed on a loan if you were to borrow the money for one year. If you borrowed £100 at 40% for a year, you’d have to pay back the loan plus £40.
It’s often referred to as the ‘interest rate’ although it often actually includes other charges and admin fees.
The ‘representative’ you hear in adverts is the APR value companies must legally advertise as an example of the rate most of their customers pay.
APR has often been criticised for being confusing. For example, let’s say you want to borrow £100 over 30 days at 0.8% daily interest – that would cost you £124. That is a fixed annual interest rate of 292% and an APR of 1295.5%.
Total Amount Repayable
Another important factor is the total amount repayable. If you borrow £500 over 12 months, you’ll end up paying back more than if you borrow it over 3 months, even though the twelve monthly repayments may be smaller as individual payments than three payments.
As long as you’re comfortable that you can successfully meet higher monthly repayments, it is generally better to take a loan over a shorter term so that you pay less in interest.
Under Financial Conduct Authority guidelines, you can be charged a fee of up to £15 for late payments. You can not be charged fees for early repayments.
Some brokers charge a fee for arranging a short-term loan. Moneypod charges no such fees.
Can I reduce my interest rate by taking out a secured short-term loan?
Although they’re less popular, you may be offered a short-term secured loan, based on individual circumstance. That means that you have to put up some form of security or collateral that the lender can take possession of if you can’t repay a loan – something like a house or a car.
Standard secured loans run from several years to over 20 in some cases. Short-term secured loans may last for as little as two or three years.
If you choose to borrow money against the equity in your property or your car, lenders will generally be more willing to lend you more money at lower interest rates.
Moneypod do not offer secured short term loans. If you do consider applying for one, please be aware that there is far more to lose if you can’t repay your loan than with an unsecured loan.
Different payment methods
The way that your short-term loan repayments are collected depend on who you choose to borrow from and their terms and conditions. The two main ways lenders use are direct debit and continuous payment authorities.
With a continuous payment authority (CPA), a lender is allowed to take a recurring payment from your account, just like a direct debit. Where they differ is that a company that has a CPA on your bank account has the authority to choose how much they take from your account whenever they want to take it.
Short-term loan companies using CPAs are governed by strict regulations determining how much and when your lender can access your account. They must follow the rules laid down by the Financial Conduct Authority.
Most of us are familiar with direct debits. Direct debits are taken out at regular intervals from your account. You’re legally entitled to cancel direct debits and reverse direct debit payments that have already been taken out of your account.
Loans through Moneypod
When you apply via Moneypod, you’re using a short-term loan broker. The value of that to you is that Moneypod takes your credit application and match you the most suitable lender on our panel.
You can choose a repayment period for your loan of between 3 months and 24 months. If you’d like to apply for a short-term loan and you want us to make sure you’re matched up with the right lender, please click here to start your no-obligation application.