The Risks and Benefits of Short-Term Loans

The Risks and Benefits of Short-Term Loans

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There are hundreds of companies offering British homeowners and tenants unsecured short-term loans. When you receive an unexpected bill that you’ve not had the opportunity to budget for, a short-term loan can, under the right circumstances, be a useful way to bridge the financial gap.

If you’re considering taking out a short-term loan, what do you need to know about the risks and the benefits? In this article, the Oyster Loan team look in depth at the pros and the cons.

Benefits of short-term loans UK bad credit

Ease and convenience

Short-term loans are generally not offered by the big banks and building societies. With all but a few exceptions, even if they were, they would take days to respond to your application.

With a short-term loan, you can apply online on your desktop or via a smartphone app.

Fast decision and payment time

Most short-term loan companies are specialists – they have been set up specifically to provide these types of loans to specific types of customers. That means they have built technology for their company to use that makes decisions on whether to approve a loan application within seconds. Some decisions may take longer if the short-term loan company has to call you to confirm more details about your application.

Many bank accounts joined the Faster Payment service back in 2014 meaning that your money could be with you within an hour following the approval of your loan and your acceptance of their terms and conditions.

So no more waiting around!

Help to restore and improve your credit rating

For people with bad credit ratings, successfully making all your repayments on time and in full may actually improve your credit score. A credit score is ultimately about what a credit reference agency perceives as your ability to meet your financial responsibilities.

A row of ticks next to your name to show that you made all of the repayments work well in your favour. Please be aware that some credit providers may not share this view.

Borrow smaller sums of money

Banks, building societies, and most financial institutions want to lend their customers a lot of money. That’s all well and good if you need a lot of money but what if you need a few hundred pounds? Unfortunately, they can’t help you.

Short-term loan companies generally lend between £200 and £2,000 over the course of the year. If you need £500 for a new washing machine and that’s all you need, why should you be forced to take out any more and pay the interest on top of that?

Strict FCA guidelines for your protection

Short-term loans are classed as High-Cost Short Term Credit (HCSTC) and this means that borrowers get extra protection over and above the protection you can expect from banks and building societies, logbook loan companies, and more.

As a short-term loan company customer, you are entitled to:

• a cap on the amount of interest you’re charged equivalent to 80p per day for every £100
• a cap on default fees – no more than £15 for the first time you miss a payment
• a cap on the overall amount you pay back – you’ll pay no more in interest and fees than the size of the loan you took out.

In addition, if you fall behind and you have trouble making your repayments, your short term lender must point you in the direction of a debt charity for help. You can appoint someone at the debt charity free of charge to act as your representative with your short-term loan company to arrange a repayment plan for the rest of your loan.

No early repayment fees

If you take out a short-term loan and you receive some unexpected money (like a bonus from work), you can repay some or all of your loan at once with no early repayment charges to pay.

Risks of short-term loans UK bad credit

Cheaper forms of credit are available

Short-term loans generally cost more than other forms of credit. If you have the money you need available on your credit card or overdraft, it will generally be cheaper to use these lines of credit than take out a short-term loan.

Missed or late payments look very bad on your credit history

When you borrow money from a short-term loan company, anyone checking your credit history within 6 years of your last payment on your loan will be visible to other financial institutions and credit providers. They will also be able to see that you’ve taken out a short-term loan.

If your credit file shows that you’ve missed payments on your loan, this will make taking out future credit (including other short-term loans) incredibly difficult.

Taking out one loan to pay the interest on another

If someone takes out a short-term loan to pay the interest on another form of credit, this is a sign of severe financial distress and we here at Oyster Loan would encourage you to contact a debt support charity straight away.

Final thoughts on short-term loans for bad credit UK

Before you think about taking out a short-term loan, are you absolutely sure that the reason you need the money is actually an emergency? Could you delay payment for a few weeks or does it need to be paid now?

If it does need to be paid now, the next question is “can you comfortably afford the monthly repayments”? If the answer is yes, then you can approach a short-term lender directly or use a broker like Oyster Loan to do it for you.

Oyster Loan, licensed by the Financial Conduct Authority, works with a panel of specialist short-term lenders, all of which are also licensed by the Financial Conduct Authority. This means that any loan you take out that we’ve found for you is covered by the special protections so that you get additional peace of mind.

All you need to do to start is to fill in your details on our application form. Within seconds, we’ll contact all of the lenders on our panel and then come back to you with the very best offer we’ve found. If you’re happy to proceed, read the terms and conditions and sign the paperwork online. Your lender will then send you your money directly.

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