Short Term Loans

What You Should Know about Short Term Lending

Very few of us can go through life without needing to borrow money. For most of us having access to loans and credit provides the financial flexibility we need to cope with the ups and downs of living in the modern world. Whether it’s an emergency or an opportunity short-term loans provide the leverage we need to take control of our fiscal destinies.

As with all lending products, however, the availability of even a small short-term loan depends largely on our credit histories. As the old saying goes, “it takes credit to get credit”. More accurately, “it takes good credit to get credit’. At least, that’s always been the prevailing wisdom.

But short-term loans shouldn’t be off limits for consumers with troubled credit histories. Even people with bad credit should still have access to lending opportunities. The secret is knowing what to look for and where to find it.

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Representative Example: Rates from 48.1% APR to 1721% APR. The minimum Loan Term is 1 month. The maximum Loan Term is 36 months. Representative Example: £1,000 borrowed for 18 months. Monthly Repayment of £89.22. The total amount repayable is £1605.96. Interest amounts to £605.96, an annual interest rate of 59.97% (fixed). Representative APR: 79.5% (variable).

How Does Your Credit History Impact Your Loan Options?

Before we go any further we should talk a little about credit scores and how they dictate a borrower’s lending opportunities.

Your credit history is an ongoing record of your fiscal performance. It contains a detailed record of mortgages, car loans, and credit card use. Even utility bill payments and subscription services factor into your final score. A strong credit rating classifies you as a good credit risk and gives you borrowing power. A poor credit score reflects a history of financial difficulties and, in a very real sense, will limit a person’s lending opportunities.

A poor credit rating is the result of a variety of factors. For many people, including younger consumers, it is simply a matter of having little or no credit history to call on. For most adults, however, it is a result of a combination of the following:

• A history of late payments.
• A history of missed payments.
• A record of overdrafts.
• Defaulting on a loan or debt.
• Bankruptcies or County Court Judgements.

Lenders depend upon a person’s credit rating to determine their creditworthiness. Borrowers with low credit scores are typically seen as high risk customers and that can often make it difficult to secure even a short-term loan on favourable terms. But people with adverse credit histories aren’t entirely without options. Even if your credit score is less than impressive you can still access the short-term loan you need when you need it.

What Short-term Lending Opportunities are Available?

Borrowers with less than perfect credit may find it difficult to secure larger loans through conventional lenders like banks and building societies. However, smaller short-term loans are available that can deliver emergency funds in a crisis or provide the financial wherewithal to take advantage of business or personal opportunities.

When it comes to short-term loans, there are three basic options:

• Secured Short-term Loans – Secured loans require the applicant to pledge personal assets as a security against the loan amount. Common assets used to guarantee a secured personal loan include homes, cars, and jewellery. Secured short-term loans can often be easier to obtain because the collateral reduces the risk to the lender. They can also benefit the borrower by allowing for lower interest rates and less restrictive repayment schedules. However, these loans do not come without risk. Should you default on the loan the lender has a legal right to seize any assets that were pledged as collateral to secure the loan.
• Unsecured Short-term Loans – As the name suggests an unsecured loan requires no collateral from the borrower. Eligibility for an unsecured loan is determined largely by the applicant’s credit history, income levels, and basic financial status. Unsecured loans are available to borrowers with poor credit. However, they typically have smaller funding options. Unsecured short-term loans for borrowers with bad credit also tend to be more expensive over all.
• Guarantor Short-term Loans – Guarantor loans don’t require the borrower to put forward any assets to secure their loan. However, they do require that the borrower engage a guarantor, or co-signer, to guarantee the loan. A guarantor is usually a family member, close friend or work colleague.

Guarantor loans can often be easier to obtain than other short-term loans. However, it is important to understand the risk involved. Should you default on your loan the co-signer assumes full responsibility for repaying the loan in full and on time.

How Affordable are Short-term Loans?

Short-term loans from either conventional or alternative lenders tend to be more expensive than their long-term counterparts in terms of the APR, but this is simply because they’re paid back over a shorter period of time. This holds true regardless of the borrower’s credit score. Lenders depend on interest and fees to make money. The longer the life of the loan the easier it is to make a reasonable profit off of a moderate interest rate. So short-term loans typically carry a higher interest rate to offset the loss of potential profits to the lender.

Before accepting any loan offer, regardless of the size or term of the loan, it is important to consider the following affordability factors:

• Total Cost of the Loan – When applying for any loan it is important to consider what the total cost of that loan will be. Remember, you will be responsible for the original loan sum as well as all interest and attendant fees. Consider your current income as well as all of your outstanding debts (including recurring payments such as rent and utilities). Do you have enough income to make your loan payments on time and in full?
• Repayment Schedules – Short-term loans for borrower’s with bad credit tend to have tightly structured repayment schedules. The time allowed to repay the loan may be brief and the schedule must be kept. Before accepting any loan carefully review the terms the lender has set so that you fully understand your responsibilities as a borrower.
• Late or Missed Payments – Late or missed payments are a problem for any borrower. Missing a payment date is to be avoided at all costs.

We Make Applying for a Short Term Loan Easy

At Pounds to Pocket we provide short-term lending products for consumers regardless of their current credit history. Applying for a short-term loan is quick and easy. Simply fill in the online form stating the amount you wish to borrow. We will need to collect some personal information in order to process your loan request.

In order to qualify for a loan from Pounds to Pocket borrowers must meet the following criteria:

• Must be 18 years of age.
• Must be a UK resident.
• Must receive income from either employment or benefits.
• Must possess a UK current account.
• Must provide a valid home address as well as e-mail and other contact details.

Once your application is received we can begin the approval process. Initially, our lending partners will perform a soft check on your credit score. This will not show up on your credit history nor will it impact your current credit score. When you have been approved for the loan and have accepted our loan offer our lenders will perform a second check of your credit history. This will be a hard check and will be reflected in your history and your score.

How Can Short Term Loans Help Your Credit?

If you are struggling with poor credit you should take steps to improve your current score. The most effective way to rehabilitate your credit rating is to demonstrate your fiscal responsibility. Short-term loans provide a perfect opportunity to do just that.

Every on-time payment shows you are in control of your finances. When your loan is finally paid off the credit rating agencies will take note of your good behaviour and reward you accordingly. Successfully managing any loan, even a small short-term loan, adds crucial points to your credit score.

If you are interested in learning more about managing your finances and improving your credit history contact the National Debt Line or Money Helper. These free government resources provide valuable advice and counselling to all UK residents struggling with their financial status.