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Short Term Loans – A Quick Fix for Financial Short Falls

Traditional loans are still prevalent, but more and shorter term loans are being made available in the UK. This may be attributed to the credit crunch that has occurred over the last 5 years, declining incomes vs. rising prices or other demands in the marketplace. Historically, short term loans in the market were dominated by following three main needs:

  1. Banking Overdrafts: These short term loans are typically supplied by the bank itself
  2. Credit Card loans
  3. Doorstep Lending: Now called Home Credit, providers issue small cash loans. To guarantee repayment, lenders send a representative to recipients home each week to collect.

The Change and Growth in the Industry

Recently, banks have drastically tightened their criteria for issuing loans. As a result, providers of traditional loans have all but disappeared. This has left people in need out in the cold. To fill the gap, there has been a rise in Payday Lenders.

Payday loans in the UK were inspired by the American payday loan phenomenon. Payday Lenders in the United States were able to issue high interest short term loans to those with less than perfect credit histories. This model proved to be very popular and quickly entered the mainstream conscience of the American population. Short term loans are attractive because they offer a quick fix for financial short falls and can be issued almost immediately. These loans for bad credit also don’t need a guarantor.

Types of Short Term Loans

Consumers in need of a small loan enjoy several types of loans:

Problems in the Industry

Poor lending practices led to tightening regulations by the Financial Conduct Authority in the U.S. As a result, the number of loans issued for the short term by providers has shrunk. The loans themselves, however, remain attractive to consumers. In the U.K., providers offer short term loans that are smaller than the traditional-type loans, typically offering loan amounts of between £200 and £1000.