Payday loans and instalment loans both fall under the umbrella term ‘Short Term Loan’. In essence, a short term loan is exactly what it says on the tin: a loan that is borrowed over a short period of time.
Short term loans also tend to have high interest rates; however, they are available to a much wider market than a lot of other loan products out there. For example, if you have a bad credit history, you might struggle to acquire a loan or overdraft from a bank, but short term loans, which are sometimes also called bad credit loans, may be more likely to be issued to customers who have a poor or no credit history.
A payday loan is a loan that a customer applies for and, if approved, then repays in one single payment on their payday.
Most lenders operate online these days which means you can apply for a loan on the internet, and if it’s approved (which often takes just minutes), then you can have the funds transferred almost immediately. creditworthiness checks. This is because it would be irresponsible for a creditor to lend money to a customer who would face worse financial difficulty by repaying the loan.It’s a very simple and quick process, but don’t be fooled: lenders won’t just hand out money to anyone. Whilst a bad credit history isn’t an immediate rejection, customer applications are still subject to affordability and
The main difference between a payday loan and an instalment loan is that an instalment loan is repaid in more than one repayment. Generally, an instalment loan is repaid over three months, however some creditors will offer up to six or even twelve months to repay. To be considered a short term loan, the loan term can be no longer than one year.
Before deciding whether to apply for a short term loan, you need to ask yourself: is it totally necessary? There is no right or wrong reason to use a short term loan, however it would be irresponsible to take out a payday loan if you have no means to repay it, or if you really don’t need it.
If you have made the decision that you need to borrow a short term loan, your next question should be about how much you need to borrow. Never borrow more than you need and always check the repayments the creditor has proposed before agreeing to proceed with the loan. If you think you can’t afford to repay the loan in one go, then you might want to consider using an instalment loan. However, while each individual repayment of an instalment loan is smaller, you will pay more in total as the interest accrues over a longer time period.
Perhaps discuss with a partner or friend if you need a loan – maybe a family member is willing to lend you the money for little or even no interest. However, if you aren’t comfortable with asking a family member for money, then a short term loan could be the friend you need. Creditors won’t necessarily ask any questions about what the money is for, although they may ask for additional proof of income when you apply.
It’s always a good idea to use a loan comparison site when thinking about taking out a payday loan. This is because comparisons sites will (as the name suggests) compare the loans for you and present you with the cheapest offer.
Clear And Fair is an unbiased comparison website which means direct lenders cannot pay to feature at the top of the page; the order you see is from the lowest to highest cost of borrowing. If more than one lender offers the same price, the lenders are ranked alphabetically. In this case, it’s a good idea to look at each lenders’ terms and conditions as they may offer different late payment fees/early repayment fees which you may want to avoid paying if you can.
Comparison sites also allow you to get a good understanding of how much a loan will cost, and what kind of payments may be required of you. Whoever you choose to apply with, make sure you’ve read their key criteria and any credit agreement documents they send you.
Remember that late payments can cause you serious money problems and missing your repayments can make credit harder to obtain in the future. Please borrow responsibly and get in touch with your creditor or a debt advice charity if you are worried about your finances or you are finding it difficult to repay your loan.
All you need to know about short term loans
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