How To Choose The Best Short Term Loan Company

How to choose the best short-term loan company

When you start looking for a short-term term loan, you’ll see that there are plenty of loan companies on the market to choose from. These lenders will all offer short-term financial help for a minimum of three months, and their application processes will be quick and easy to complete online. But how can you tell which is the best short-term loan company to choose? There are a few things you should be looking for.

Are short-term loan companies regulated?

Yes. You need to check that the company is reputable and authorised by the Financial Conduct Authority. The Financial Conduct Authority is the UK’s financial regulator and is in place to protect customers, promote healthy competition between lenders, and keep the financial industry stable. All short-term loan companies must be authorised by the Financial Conduct Authority, but you should always double-check that the lender you’re considering is registered with them. You can do this on their website. Any lenders that aren’t registered with the Financial Conduct Authority are operating illegally, so you should avoid them at all costs.

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How can I tell which lender offers the best affordable short-term loan?

When it comes to affordability, there are two features to look out for here – the lender’s APR and daily interest rate. These will differ between lenders, and lower numbers mean more affordable loans. The APR is calculated the same way across all lenders, making it easy to compare the rates from one to the next. APR stands for annual percentage rate – it’s the official rate used by lenders to help you understand how much it’ll cost to borrow money from them.

Short-term loans have higher APRs than long-term loans and credit cards because of how the calculation is made. Short-term loans are designed to be borrowed for a short length of time, but APR is an annual rate that measures the cost of borrowing money over 12 months. When a loan period is longer than 12 months, the APR is calculated by adding up the total interest and fees and dividing by 12 to create a yearly average. When the loan is less than 12 months, the total cost is multiplied to give an average for the year. This explains why APRs for short-term loans are usually much higher.

You’ll also notice references to ‘representative APR’. Even though APR is calculated in the same way across lenders, individual loans are influenced by factors specific to their terms and conditions. This means that the APR you’re offered can differ from what the next customer gets due to your individual circumstances. The representative APR is the rate that 51% or more of borrowers are offered. If you’re a new customer, you’re likely to be offered close to the Representative APR or higher. Repeat customers who have shown that they are reliable and creditworthy usually get a lower APR.

Your questions, answered

Another way of choosing the best short-term loan company is to compare their online reviews. You can look for customer testimonials and stories on their website, reviews on third party websites, and comments on their social media pages. This is a great way of reading real customer feedback and, if there are complaints, seeing how the company deals with and resolves them.

Some loan companies are better than others because they offer special terms and conditions designed to make borrowing money more flexible. For example, you might be able to change your repayment dates if your circumstances change or defer payment for one month if you can’t quite make the repayment.

If you’re in an emergency and have nowhere else to turn for help, then yes, a short-term loan could be the solution you’re looking for. They are designed to help people with regular incomes who face an unexpected bill or outgoing, who can then make the repayment on their next payday. There are some other standard criteria that you will need to meet to apply for a short-term loan, including:

  • Aged over 18.
  • A UK resident.
  • A UK bank account holder.

Short-term loans aren’t designed for long-term borrowing or expenses that aren’t necessary, like a new pair of shoes or a night out. Borrowing money should be done responsibly and only when you have no other choice. Customers often take out a short-term loan to pay for:

  • Emergency dental or medical treatment.
  • An emergency trip to the vets and any required treatment.
  • Urgent vehicle repairs after a crash or break down.
  • A replacement laptop.
  • Necessary home items, like a replacement boiler, refrigerator or washing machine.
  • A new window to replace a broken one.

Short-term loans are also a great solution for business owners or self-employed people who rely on certain things to get their job done, including a van, tools or a laptop. If any of these items were to breakdown and work can’t be carried out, these people face a potential loss of income and even clients. When you’re facing an emergency, short-term loans are a great solution because you can apply quickly and conveniently online and usually get a decision straight away. 

If your loan is approved, the money is generally deposited directly into your bank account on the same day. The speed and ease of short-term loans make them a great way to navigate a stressful situation when you’re low on cash.

There are some risks linked to short-term loans, as there with all types of credit, but they only start to arise when you start missing your repayments. Even the best short-term loan providers will charge extra fees, such as late payment charges and potentially more interest as time passes on your missed payments. Missed repayments can lead to deep, long-term debt, which can be difficult and expensive to get out of.  They are also required to update your credit file to reflect your missed payments, regardless of how good a lender they are.

Lenders make it extremely easy and hassle-free for you to make your repayments. They use a continuous payment authority that takes scheduled payments automatically from your bank account on the dates you have agreed. This is something you agree on during the application process for your loan. Your only responsibility is to make sure you have sufficient funds in your bank account when the payment is due.

Just as meeting your loan repayments on time and in full can improve your credit rating, failing to make your repayments can be detrimental to it. When a missed payment occurs, your lender will update your loan status to ‘overdue’. Continued missed payments will lead to a default on your file, which will stay there for six years and can impact your ability to get credit in the future. This means that a mortgage application or personal loan application later down the line could be impacted by missed payments you made half a decade ago. Think of defaults as big red flags that warn lenders you can be irresponsible with your finances.

The good news is that lenders do everything they can to prevent you from missing repayments. They outline repayment amounts and dates very clearly in your agreement. You can ask your lender to send you a reminder for each payment a few days before it is due, although most will do this automatically.

The best way to minimise the risk of missed payments is to get in touch with your lender as soon as your circumstances change. No lender wants their loans to be left unpaid and overdue, so they will listen to your case and work with you to come to a fair solution. Often, lenders have special teams who are trained specifically in handling missed payments and helping customers stay out of long-term debt.

There are lots of short-term loan companies out there, all of which are competing for your custom. There are also lots of alternative borrowing options that might suit your personal situation better. It can feel confusing and daunting knowing where to start when it comes to choosing the best loan company, especially if you’re facing the pressure of an emergency.

Our partner’s knowledgeable team of experts will answer any questions you might have and offer the latest advice on short-term loans. They can also provide you with advice on a range of alternative financial products and options that might better suit your personal requirements. Get in touch today to get the help you need.