**Warning:** Late repayment can cause you serious money problems. For help moneyhelper.org.uk | **Representative APR: 79%** | The Money Shop is a trading name of New Horizons Finance Limited who is an introducer appointed representative of Flux Funding Limited, who are an authorised credit broker, not a lender.
**Warning:** Late repayment can cause you serious money problems. For help moneyhelper.org.uk

Are Short-Term Loans Safe?

Guide to borrowing safely.

Short-term loans are safe, providing you use a legitimate lender and make your repayments as agreed. However, they’re not for everyone and should only be used as a short-term solution for an emergency situation. If you need more information about short-term loans before deciding to go ahead, refer to our collection of in-depth guides.

Authorised financial products are regulated by the Financial Conduct Authority (FCA). This includes short-term loans. All lenders should be FCA-authorised but it’s always important to double-check that the lender you’re interested in borrowing from is legitimate. You can check that the lender is registered on the FCA website. If the lender in question is not registered with the FCA, do not proceed with a loan application and inform the FCA.

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The Financial Conduct Authority also has a specific safeguarding regulation for short-term loans which was introduced in 2015. It is an interest price cap on short-term loans designed to protect customers from excessive charges when borrowing high-cost, short-term credit. This means you can take out a short-term loan safe in the knowledge that you will never be charged more than 0.8% interest per day.

Your questions, answered

Lenders also play their part in ensuring that your short-term loan is safe. They will check whether you’re a good candidate for borrowing from them when you apply for your short-term loan online. This is one of the ways they lend responsibly and identify whether it is safe for you to have a loan. When you apply, you’ll be required to fill in an online form that asks questions about your personal circumstances. This will include questions about you, your income, your residential status for the last 3 years, your monthly outgoings and potentially your salary (bank statements or wage slips may be required as proof of income). This information is key for the lender to assess your affordability. They will combine your affordability with the outcome of a check against your credit file to make sure you are a creditworthy candidate for a loan. As responsible lenders, if you do not meet their criteria your application will be declined

Lenders usually do everything they can to prevent you from missing repayments. They provide the dates and amounts clearly in your agreement, and you can request a reminder for each payment a few days before it is due. You can also use your calendar or smartphone to set your own personal reminders.

Lenders use a continuous payment authority (CPA) to collect their repayments, which is something you agree to when you apply for your loan. A continuous payment authority takes scheduled payments automatically from your bank account on the dates you have agreed. This means that providing you have sufficient funds in your bank account, you don’t need to do anything else in order to repay the loan. You can just let the repayment be taken from your bank with no extra hassle or worry.

You, as a borrower, can make sure that it’s safe for you to take out a short-term loan. It is safe to borrow as long as you can absolutely afford to make the repayments. You should never borrow more than you need, and you should borrow responsibly for situations where you definitely need the funds and when there are no other options. When you apply for your loan, you will agree to a set of repayment dates and amounts. With short-term loans, repayments are usually a minimum of 3 months. You must make sure you can make the repayments on time, and as agreed.

Another way to avoid the negative effects of missing your repayments is to do a thorough job of comparing short-term loans before you apply. Some lenders will offer better APRs – the lower the APR, the less your loan will cost you overall. You should look for lenders who offer more flexibility with their loan terms – some are happy for you to defer payment for a month at no extra cost (other than additional interest for the extra days), whilst others let you move your payment dates around. By choosing a flexible short-term loan with a low APR, you are putting yourself in the best position to be able to make your repayments without any issue.

Short-term loans become dangerous once you start to miss your repayments. If your circumstances change and you can no longer afford to make your repayments, you must get in touch with your lender immediately to let them know. If you don’t, you may face extra fees, such as late payment charges, and potentially more interest as time passes. Missing your repayments can quickly spiral into long-term debt, which can be extremely difficult to get out of.

Failing to repay your loan on time can have a negative impact on your credit score. Just as repaying the loan on time can boost your score up, failing to make your repayments can bring it down. When you miss a payment, your credit file – which future lenders will look at to judge future applications – will be updated with an ‘overdue’ status. If you continue to miss your payments, ‘overdue’ will become a Default, which is a red flag that shows you cannot meet your agreed financial responsibilities and are not a good candidate for future borrowing. This will stay on your credit file for 6 years so should be avoided at all costs by making your repayments on time.

If you are worried about being able to make your repayments, getting in touch with your lender is the best thing to do. They have dedicated members of staff who will listen to your situation, provide helpful advice and work with you to establish a fair solution. For lots of lenders, this takes the form of a repayment plan that lets you make reduced payments until you get back on your feet financially.

Short-term loans are designed to help people who are in a financial emergency with nowhere else to turn. This means that all other options, including savings or friends and family, have been exhausted. You should never take out a short-term loan unless you have no other choices. Reasons you might need to take out a short-term loan include:

  • Emergency dental or medical treatment.
  • Emergency veterinary treatment for your furry best friend.
  • Urgent car or van repairs.
  • A replacement laptop.
  • A replacement boiler, refrigerator or washing machine.
  • A new window to replace a broken one.

Short-term loans can be really useful if you run your own business or are self-employed, and the thing you rely on to do your work – such as your car or laptop – breaks and needs replacing. Instead of facing a loss of income through being unable to work, a short-term loan can be an effective short-term solution to keep your business going.
These are just some of the scenarios you might find yourself in before needing to take out an emergency loan. They are all incredibly stressful and frustrating, made even more so when you don’t have the funds in place to resolve the problem. Short-term loans are a great solution because you can apply easily and quickly online and usually receive an instant decision. If your loan is approved, the funds are generally deposited directly into your bank account on the same day. The speed and convenience of short-term loans make them a great way to fix your emergency when you’re low on cash.

Not everyone will be eligible to apply for a short-term loan. You should check your eligibility before you go ahead and apply because if you are declined, this will show on your credit file and future lenders may be less inclined to lend to you. The basic eligibility criteria for most loans are:

  • Aged over 18.
  • A UK resident.
  • Employed, either by a business or you work for yourself.
  • A UK bank account holder.
  • Receive a regular income.