When it comes to short term loans, it’s not always easy knowing which is the best option to suit your needs. So how do you decide which type of short term loan you should opt for, and how do you calculate the interest rate?
For most people, the sort of loan you take out will depend on your personal circumstances. Factors such as what the loan is for, how much you need to borrow, and what your credit rating is like. Once you have determined these things, you can then start to think about calculating loan interest rates.
How to Calculate Short Term Loan
The interest rate for most loans is calculated in APR, which stands for Annual Percentage Rate. This is a very helpful figure for long term loans, especially larger loans like mortgages. Even the smallest difference in APR can dramatically adjust your monthly repayments and the amount you’ll repay overall when it comes to big loans.
But with short term loans, the APR can be misleading. As you often won’t be paying the loan back for more than a few months, working out the annual rate isn’t necessary. A daily rate is usually more helpful, or you can simply work out how much interest you’ll be paying back overall.
For a lot of short term loans, the interest rate is around 0.8% a day. So if you were to borrow £100 for 7 days, you’d end up paying around £5 in interest. This certainly doesn’t sound like a lot when calculated daily, but can be intimidating when you’re told the APR, which can be over 1,000%. Clearly you won’t be paying back more than a thousand times what you borrow!
Short Term Loans for Poor Credit History
If you have bad credit, it can be more challenging to take out a loan. You may have been turned down by other lenders, especially traditional lenders like banks. But even if you have a low credit score, you should still be able to take out a short term loan.
People often have a poor credit history because of something that has happened outside of their control. Difficult life events like illness or sudden unemployment can cause you to fall behind on your bills and loan repayments, and it’s next to impossible to catch up. In these cases, your credit score will suffer, and you’ll then find it harder to take out further credit.
Short term lenders understand that your credit score is not always a true reflection of how you manage your money. That’s why they tend to put more weight on factors like your income and expenditure and your employment history. As long as you’re able to comfortably afford the due repayments without putting yourself into any difficulty, a short term lender should be able to help you get the funds you need.
- While the interest rate for most loans is calculated in APR, this is not that helpful when it comes to short term loans, as you don’t pay them annually. It’s generally better to work out the daily rate or the amount of interest you’d pay back overall
- For people with bad credit, short term loans can be a great solution, as short term lenders are usually less concerned with your credit score than things like your income and expenses
- Using comparison sites and broker services can help you find the lowest interest rate short term loans, and using brokers is often a good idea for those with a poor credit history
Best Place to Get a Short Term Loan
If you’re looking for a short term loan, but don’t know where to start, it’s often a good idea to use comparison sites or broker services. A comparison site can show you a wide range of the lender options available, and will generally also compare interest rates for you. With a broker site, they will use your financial details to not only compare rates for you, but also match you with the lender most likely to approve your loan application.
Using a broker can therefore be particularly beneficial for people with bad credit, who are worried about finding a creditor happy to lend to them. So if you’re looking to take out a short term loan, My Financial Broker can help! Simply complete our short application form for a no obligation quote – it should only take a few minutes to apply, and our services are completely free for all our customers.