Short-term loans are loans with repayment periods of between three months and two years. Many lenders will advertise a ‘strict policy against hidden fees’, but it’s always best to know what to look out for in case they occur.
Short-term loan charges
“Standard charges” are what you pay back as a result of taking out a loan. These include the loan amount and interest incurred. The standard charges you pay depend on how much you borrow and how long you borrow for.
Typically, if you meet all of your repayments on time and comply with the terms of your loan, this is all you have to pay back. Most lenders will charge you additional sums if you are late with a payment or they have to write to you.
Can fees vary through the loan?
A few years ago, the Financial Conduct Authority (FCA) put special rules in place to protect consumers taking out short-term loans don’t get out of hand. Any short-term lender in the UK has to abide by these three rules:
- Daily interest is capped at a maximum of 0.8%,
- Missed payment fees cannot exceed £15, and
- Total combined interest and fees will never exceed the principle (the amount you borrowed) of the loan.
So, the answer is the fees can not vary through the loan – they must adhere to the FCA guidelines and be made clear in your loan agreement.
Short-term loans – Setting up a Continuous Payment Authority (CPA)
A CPA is a recurring payment which a lender will often ask you to set up when you’re signing your loan agreement (either online or on traditional paper).
A CPA allows a lender to take what you owe them directly from your bank account. This is unlike a direct debit – a direct debit requires your prior permission to withdraw money from your account and how much that withdrawal will be for.
Described like that, CPAs can seem risky. However, the FCA strictly governs how lenders can use them.
If you’re worried that a CPA will leave you without money for essentials or mortgage payments, don’t hesitate to get in touch with your lender. All lenders want two things – a) to make sure they get their money back and b) to make the experience as comfortable for you as possible meaning they’re normally very flexible.
Short-term loans – Missed Payment fees
Missing a payment – including with short-term loans – will often incur a penalty fee. The FCA capped this type of fee at £15 after they took over regulation of the short-term loan market. The FCA wanted to stop some of the practices they disliked before they took over and one of those practices was spiralling charges for late payments.
Please rest assured that today, should you incur a missed payment fee with a short-term lender, it will never exceed £15. Some lenders charge no late fees at all.
Short-term loans – Transmission fees
A transmission fee is a charge you pay when a lender offers you a deal – basically, it’s like an extra charge for borrowing money. They are normally charged if a loan you take out is for around 20 days or less and the transmission fee is levied to cover the cost of processing a transaction quickly.
The FCA has implemented rules surrounding this that makes them far less common nowadays but it’s always wise to check.
Short-term loans – Origination fees
This is sometimes referred to as an ‘administration fee’ and pays for the processes involved in setting up the loan. This does not cover transmission or processing of money but instead will be charged by a lender for the work in presenting you with a loan agreement to sign.
Short-term loans – Extension fees
If you find yourself in a position when it’s necessary to push back the date of your final payment, you may be charged to do so. This extension fee could possibly be added to your total loan amount.
Usually, you have to ask for an extension. Even if your repayments may have to be completely up to date, you’ll have to contact your lender to talk about an extension.
Extensions are recorded on your credit file and these may have a negative effect. It’s best to try and avoid extensions if you can.
Short-term loans – Late Payment Interest
Late payment interest is charged by most lenders on your short-term loan if you’re making a repayment. Normally, the interest rate charged under the late payment interest part of your contract will be exactly the same as the interest rate you agreed to take the loan out at.
Moneypod – Worried about brokers’ fees?
As a broker, we receive a ‘thank-you’ payment from the lender we refer you to. Using our service is free to you as the borrower. However, other brokers and lenders will have their own charges and fees in place.
Other brokers may charge a fee for using their service – sometimes up to 10% of the loan value. At Moneypod, our priority is finding you a lender that best matches your needs and not taking money from you when you need it the most.
Moneypod – Data Protection
With this in mind, if someone contacts you demanding you buy products to prove your ability to pay for a loan, you may be a victim of fraud. Moneypod recommends reading our fraud protection guidance article or calling ActionFraud on 0300 123 2040 if you are certain you are a victim of fraud.
If you feel confident that you would be able to pay back a short-term loan successfully, please click for our short-term bridge loan application.