Millions of Brits take out short-term loans every year. When used responsibly, they can be an important tool for people who find themselves short of cash to pay for something urgent and essential which they currently don’t have enough in their savings account to meet. As with all the financial products, you should do your due diligence. Due diligence means doing the maximum level of investigation and questioning you can into a loan so that you get the deal that’s right for you. Your finances will be impacted if you do not use the loan in a responsible manner. In this article, we will cover 5 major do’s and don’ts when you apply for a short-term loan. Whether you are taking a Loan for Holiday or you are borrowing money to cover the expenses of a medical emergency, there are a few concerned areas that you must take into consideration.
What is a Short-term Loan?
A borrower takes out a short-term loan for normally between £100 and £1,000 and they have between 1 and 12 months to pay them back. Repayments are collected on agreed dates by your lender from your bank account once a month for the same amount each time if you have opted for a fixed interest rate loan.
Short-term loans are normally used to cover emergency situations like your car breaking down, funeral expenses, and unexpected bills. You can get an immediate decision (usually within a few minutes) on most of the applications and, if it is accepted, the money can be in your bank account within an hour (although it’s longer with some lenders and sometimes the speed of payment depends on who you bank with).
With hundreds of lenders out there wanting to count you as their next customer, Oyster Loan has compiled the top 5 do’s and don’ts on finding the right short-term loan for you, which matches your lifestyle and your circumstances.
Top 5 Do’s of a Short-term Loan
Do make sure that you can afford the repayments
Short-term loans are often taken out during emergency situations when something must be paid for straight away but when you don’t have the spare cash available to pay for it there and then.
The fact that you’ve got to pay this surprise bill will be stressful enough and the last thing any borrower should do is take out a loan when they know in advance that, when it comes to repayment day, the repayment is going to cause even more financial stress – maybe even financial hardship.
A short-term loan is there to help you when you need it – it’s not there to make life more complicated. By stretching out your loan over a longer period, the amount of money you have to hand over every month to make your repayments is less. However, please do bear in mind that repaying your loan over a longer period of time means that you’ll end up paying more in interest once the loan has been settled in full with the last repayment.
If you do not have a spotless credit history, and you want to borrow a Short-term Loan for Bad Credit with No Guarantor, make sure you borrow an amount that you can easily afford to repay or else it will impact your financial record adversely.
Do pay off your loan early if you can
It’s hard to believe but there was a time when many loan companies, especially banks and building societies, would actually fine you for paying for loan off early. The fine was called an “early settlement fee”.
If you took out a loan over 5 years and you had the opportunity to pay it back after 3 years, your loan provider would fine you by making you pay between three and six month’s interest to settle up early.
The vast majority of short-term loan providers don’t charge an early settlement fee so if you have the chance to pay off your loan in full ahead of time, you should definitely do it. Interest will stop being added on the day you pay it all back so you could save yourself a lot of money. However, please go through the Terms & Conditions of the lender before paying off early.
Do make sure that the company you’re dealing with is on Financial Services Register
The short-term loan sector is one of the most heavily regulated financial markets in the UK. It’s very difficult for a lender or a broker to get a licence and they can only lend money out by following strict instructions.
Oyster Loan is a Financial Conduct Authority-licensed credit broker. Brokers don’t actually lend you the money but what they do is introduce you to the lenders who do. Each of the lenders of our panel of lenders is also Financial Conduct Authority-licenced.
You can check our licence and the licences of the lenders on our panel on the Financial Services Register.
What are the lending rules that all Financial Conduct Authority-licensed lenders have to follow?
- You can be charged no more than 0.8% interest per day on a loan (that’s equivalent to £24 for every £100 you borrow).
- If you miss a payment, you can be charged no more than £15 as a default fee (many lenders now don’t charge a default fee although you should always read their terms and conditions to make sure).
- Added together, the amount of interest charged and any default fees levied on your account can not total more than the actual amount of money you borrowed in the first place. That means that if you borrow £100, you’ll never pay more than £100 back in interest and in fees.
- If you get into difficulty, your lender must be understanding, co-operative, and accommodating. They cannot roll a loan over more than twice and they can’t try to collect payment from your debit card more than twice without your permission.
Do tell your lender if you get into difficulties
On the subject of getting into difficulty paying your loan back, there are rules and procedures that your lender must follow for your protection.
If you tell your loan provider that you’re having problems paying the loan back, they must treat you in a fair way and they must give you a reasonable amount of extra time to repay the loan. They may choose to suspend any charges you have to pay and they also may freeze any interest payments.
They must point you in the direction of free sources of advice on debt and debt management and, if you choose to work with a debt advisor, they must not try to collect the remaining debt from you while you’re sorting out a repayment plan. If you offer to make much smaller payments against the loan, they must consider it, especially if, by paying any more towards the loan, this would leave you short for life’s essentials like food, utility bills, your mortgage, or your rent.
Do know your rights – they must not constantly chase you by email, by SMS, or with phone calls
Remember always to take out a loan with a Financial Conduct Authority-licenced lender through a Financial Conduct Authority-licenced broker. If you don’t, you may be borrowing money from a loan shark who does not have to follow these rules and who often relies on threats and intimidation to be repaid. Do you know a loan shark? Tell someone about it.
Top 5 Don’ts of a Short-term Loan
Don’t go for the first offer – shop around but be careful how you do it
You might decide that you want to use a big household name for a short-term loan – perhaps a company whose adverts you’ve seen on the television or a company you’ve read about in the news. Alternatively, someone you may know might have highly recommended a personal loan company to you based upon the experience they had with them.
That’s all useful and helpful information but it does not necessarily mean you’ll get the right loan for you.
Many short-term loan borrowers work with Oyster Loan to find the best deal for them. So what exactly is different about using a broker rather than approaching a company directly?
Each loan provider has a type of customer they like to lend money to. The problem is they never publicise what their ideal borrower looks like. That means that you might spend hours and hours applying to direct lender after direct lender but get nowhere in the end because, through no fault of your own, you didn’t know that you didn’t fit into their category of what they consider an ideal borrower to be.
Even worse, when you make application after application, that actually decreases your chances of having a loan application accepted because lenders will think you’re desperate for money. They’re able to see every company you’ve approached because it’ll be there on your credit record.
With a broker like Oyster Loan, it’s different. We know for each lender who their ideal borrower is – that’s because they tell us and keep us updated when it changes. When you submit your details to us when you’re making an application, our computer system matches your details to the lenders most suited to you and your individual circumstances. As soon as we’ve got those matches, the lenders run a credit search with the details you’ve given us on your application. That works better for you because, even if we find 15 lenders who you’d be a great fit for, only one credit search is carried out.
Normally within less than a minute, we get all the offers back from the lenders who want to work with you. Our computer system then sorts through all of these personalised deals so that you only get the very best and cheapest offer that we’ve found. It really does pay to shop around – not just for the cheaper deals you get but you do save a lot of time and only one credit search is carried out.
Don’t borrow more money than you need to
Short-term loans can be more expensive than the loans you get from a bank or a building society. But then again, banks and building societies aren’t set up to provide short-term loans for smaller amounts of money. The lenders we work with are here to do just that.
If you have an unexpected bill for £250, only try to borrow that amount. Please don’t be tempted to put it up to £1,000 for whatever reason. Why? Because you’ll end up paying interest on the money you don’t actually need to borrow. With Oyster Loan, you can easily borrow an amount ranging from £100 to £1,000 for your short-term needs.
Don’t use this loan to repay other debts
You should never use a short-term loan to meet repayments you have to make on credit cards or on other loans.
Short-term loans are more expensive than most credit cards or longer-term loans you’ll have taken out. You’ll get yourself into more financial difficulties by doing this because the repayments on your short-term loan will be higher than the repayments you make on most credit cards or longer-term loans.
If it’s impossible to make ends meet this month, it’ll be even harder next month. You should look for help immediately from one of the following debt charities:
Don’t cancel your continuous payment authority without letting your lender know first
If you are having trouble making the repayments on a loan, you are entitled to cancel to continuous payment authority (CPA). The CPA is what a lender uses to collect payments via your debit card from your current account.
You should let your lender know first that you’re experiencing problems paying back the loan and you should also inform them that you are going to contact your bank to cancel the CPA they have set out on your account.
At this point, your lender will pass you to their customer service team. You can speak to their customer care representatives to let them know exactly what’s going on. You can also ask them for their help which they are obliged to provide you with under Financial Conduct Authority rules.
Don’t forget to read the Terms & Conditions
Sometimes, reading the terms and conditions on a loan agreement when there’s an emergency and you need the money now seems like the last thing in the world that you’d want to do.
However, it’s important to know everything about your loan before you take it out because you’re entering into a legal agreement and if you somehow break the terms and conditions of that agreement, there may be consequences to it like default fees, court action, and so on.
Never hesitate to ask any questions of your lender or your broker – they’re there to help. In the same way that you don’t want to take out a loan if you’re not happy with the terms and conditions, the lender will feel the same way too. It’s in their interests but, more importantly, it’s in your interests too.
Do you really need the loan?
Last and most certainly not least, strongly consider whether you really need the loan in the first place. If it’s for a car breakdown but you don’t actually need the car to get to work or to take the kids to school, it’s probably better waiting for your next wages to arrive and get it done then.
Could you borrow the money from friends and family? Could you ask the bank for a temporary extension of your overdraft to meet this bill? Taking out finance should always be the last option and we’d strongly recommend you consider all other possibilities before you apply for a short-term loan. If you have explored every other avenue and you think that a short-term loan is right for you, you can apply with Oyster Loan.
Get a loan that works for you
At Oyster Loan, we’re not lenders. We are highly experienced credit brokers. What this means is that we help those looking for cheap short-term loans to find the best possible deal for their individual situation.
Thanks to our close relationship with our lending partners, we know just the types of borrowers who they are happy to lend money to. When you submit your details into our smart and ultra-quick computer system, we are able to match you with the loan company most likely to accept you for credit within seconds.
We’ll help you find the lowest possible price for the loan you need. You’ll know exactly how much you’ll need to repay each month and for exactly how long with no hidden costs or fees – meaning you can effectively budget for all of your repayments. We do all the hard work for you and our service is completely free of charge. You don’t have to accept any loan offer we find for you. You’re in control at all times.
So, if you need money to cover a surprise expense without impacting on your budget, apply with us.