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.
Ready to search for your loan?Get Your Quote
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.