Responsive Menu

My Financial Broker is a credit broker and not a lender. Warning: Late repayments can cause you serious money problems. For help, go to

What is a Short Term Loan?

What is a Short Term Loan?
Posted in

While it may be obvious from the name that a short term loan is repaid over less time than other forms of credit, what other factors make up a short term loan? How easily accessible are they and do you need good credit to apply?

There are a few different types of short term loan, which we have explored a little more below. In general though, most people are eligible to apply for a short term loan, no matter their credit score.

Short Term Loans

Short term loans are typically paid over a few months or years. For the most part, these loans will be for smaller amounts than long term loans. But this will depend on the lender.

The lending criteria will also vary from lender to lender. However if you are aged 18 or over, in full or part time employment, and live in the UK, you should be eligible for a short term loan. There are four main types of short term loan, which are as follows:

Payday Loans

Perhaps the most well known type of short term loan is a payday loan. Normally you would only borrow a small amount of money with a payday loan. As they are repaid in one lump sum, this would be harder to pay back if it were a larger amount.

The maximum duration of a payday loan is around 35 days. You’d typically pay back the loan on your next payday. Payday loans are famous for having high interest rates, but as you’d only be borrowing the money for a short period of time, you probably wouldn’t be paying much interest overall. A loan of £100 over two weeks would only cost around £10 in interest.

Instalment Loans

An instalment loan allows you to spread your repayments over a few months or years. Short term instalment loans are incredibly flexible. You can choose how much you want to borrow, over how long, and the dates of repayment.

In terms of interest rates, most short term loans have higher interest rates than longer term loans. But while larger loans like mortgages have early repayment fees, for the most part, there are no such fees with a short term instalment loan. You can therefore save money by making early payments when possible.

Guarantor Loans

A guarantor loan is similar to a short term instalment loan, but can offer lower interest rates. The reason for this is that the lender has more security with a guarantor loan. If you are for whatever reason not able to keep to your repayments, your guarantor will have agreed to pay instead.

The main disadvantage of a guarantor loan is finding someone you trust to be your guarantor. Speaking about your finances with friends and family can be difficult. But if you are able to find a guarantor, your chances of loan approval are very high, especially if your guarantor has a good credit rating and is a homeowner.

Bad Credit Loans

A bad credit loan is a form of credit aimed at people who have a low credit score. It can be challenging to take out loans if you have a poor credit history, so certain lenders specialise in bad credit loans to ensure that everyone has access to credit when they need it.

Bad credit lenders tend to be less concerned about your credit score than how you manage your money on a day to day basis. They will therefore look at factors such as your income and expenditure, as well as your employment history, when making a loan decision.

Key Points

  • Short term loans can be categorised into payday loans, instalment loans, guarantor loans and bad credit loans
  • Most short term loans are unsecured – you don’t need collateral to apply. The interest rates can be higher, but these loans are typically more accessible. This is because loan approval is not completely dependent on your credit score
  • There are many direct lenders offering short term loans, making it difficult to know which one to choose. A broker service can help you find the best lender, who is likely to approve your loan application

Secured and Unsecured Loans

Short term loans are almost always unsecured loans. This means that you don’t need any collateral to borrow money, and there is no risk of your property being repossessed should you default on the loan. The main disadvantage of unsecured loans though is that, because the lender takes on the risk rather than the borrower, the interest rates tend to be higher.

Perhaps one of the biggest advantages of an unsecured loan is that there are a huge number of lenders offering this type of credit. Lenders often specialise in certain types of unsecured loans too, such as bad credit loans or payday loans.

In addition to this, as loan approval for an unsecured loan is not based solely on your credit score like a lot of secured loans, they are therefore usually more accessible than secured loans. Even if you have bad credit, you should be able to take out an unsecured loan.

How to Get a Short Term Loan

As discussed, there are many lenders offering short term unsecured loans. Thus it’s not always easy to find the best lender. You’ll want to consider factors such as the interest rate, and your chances of loan approval. You should also think about the level of customer service offered. Some people may also look for a short application process, and fast pay out time, especially if they have an emergency expense.

The simplest way to compare these factors is to use a broker service like My Financial Broker. We’ll do all the hard work for you, and put you in touch with the best short term loan lender. There are no hidden fees or charges either! Our services are completely free, and getting a no obligation quote should only take a matter of minutes!

Apply Now