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Short-term loans are, for many Brits, a preferred solution for any temporary financial problems they face.

If you borrow money from a short-term loan provider and you know that you’ll be able to comfortably pay back the monthly instalments, a short-term loan gives you the cash you need when you need it to sort out any unexpected bills or expenditure you have to pay.

Some people worry that working with a short-term loan provider will make getting credit harder in the future, even if they pay a loan back.

 

What’s the downside of a short term loan?

If you currently have a bad or non-existent credit rating, taking out a short term loan and paying it back in full and on time can be a real help in improving your credit score.

Your credit score is used by lenders to see what kind of borrower you are. Credit providers look at your credit history to see how likely it is that you will be able to meet your financial commitments.

There are a number of things that can cause you to have a bad credit rating. If your score is low, in a lender’s mind, they’ll worry about not getting their money back.

Even if you are accepted, it’s likely a short term loan provider will ask for a slightly higher rate of interest. Why? Let’s say you’ve taken out a 12 month loan. It gets to month 9 and you can’t afford to repay the rest of the loan. They will have collected more interest from you in the 9 months you have made payments which means they don’t lose quite as much money.

But, if you were to take out a short-term loan and make your repayments in full and on time, this would bring your score right back up again. This would be proof to a short-term lender that that you are a responsible borrower. They like this as, to them, the risk looks a lot lower about not getting their money back.

How you have dealt with any loans you’ve had in the past will also be there in your file.

If you have a history of making payments on time, this will reflect really well on you. That includes short-term loans like we help consumers with here at Moneypod.

But, if you have previously been unable to keep up with your repayments, getting credit (like loans, overdrafts, credit cards, and so on) can become difficult.

 

How to reduce the impact of short term loans on your credit rating?

  • Do not make unnecessary loan applications. Only ever take out a short-term loan if you really need to and if you can be 100% certain you will be able to pay it back on time.
  • Be careful about who you apply to. If your credit score is poor, do not take the risk of applying to a lender that is likely to reject you. Many providers offer loans specifically designed to help you build up your credit rating.
  • Use a broker service like Moneypod to help match you with a loan provider that is likely to accept you. Brokers can make multiple loan applications for their clients while leaving only one footprint on your credit history – this is something consumers approaching lots of different lenders can’t do. (More on this below)

 

How can Moneypod help me?

As a brokering company, Moneypod doesn’t actually lend you money. Instead, we take a look at your application, and match you to a lender whose ‘consumer profile’ you fit best.

A ‘consumer profile’ is a set of criteria that lenders have in order to display to brokers who they prefer to lend to.

Some short-term loans are targeted towards specific demographics, such as students, the unemployed, or the elderly. Short term loan providers let brokers like Moneypod know who fits their consumer profile but they generally don’t let people know in the same detail on their websites.

Moneypod provides a free service where we take your loan application and come to a judgement on the  short-term loan provider we think suits you best.

 

Impact on your credit score

We perform what is known as a ‘soft’ credit check on your behalf so we can get an idea of your financial situation.

When we match you up with a lender and pass your details onto them, they’ll do a ‘full’ credit check. This is the type of check that will appear as a ‘footprint’ on your credit history.

Why are these “footprints” important? Let’s say, rather than using Moneypod, you approach 5 different short-term loan providers direct. They’ll all do full credit checks on you – that’s five footprints. When lenders see lots of footprints in a person’s credit file, they get nervous – it has a negative impact on your credit score.

At Moneypod, we think it’s better for you to have just one successful full credit check on your credit report than lots of them.

If we can’t, we’ll recommend you to one of our FCA-approved partner brokering agencies who may be able to present you with other options.

Paying back short-term loans on time and in full helps your credit score overall. It’ll give other short-term lenders, banks, and credit card companies a lot of confidence dealing with you if you make all your short-term loan repayments.

If you want to borrow between £500 and £10,000 over 3 to 24 months and you’re confident you can meet all of the monthly repayments, put Moneypod to work for you. Please click for our short-term loan application.