You might have heard the term short term loans bad credit and wondered if it might be appropriate for you. There is no easy answer to the question as it depends on your personal circumstances, such as how much you want to borrow and when you can pay back. Here is a guide to short term borrowing explaining everything you everything you need to apply for a loan.
What are Short Term Loans?
Let us divide this up into separate parts. First, let us explain what a short term loan is.
A short term loan is a loan that is taken out over a short period. This period can vary between lenders. Some lenders will offer a loan called a payday loan that is generally paid back on the next payday. Other lenders might extend a short term loan for up to 36 months.
The amount you can borrow with a short term loan may also vary between lenders. This is typically between as little as £100 and up to as much as £5000. The amount borrowed will depend on your personal life, such as the amount of money you have coming in and going out and employment status. The lenders we work with take into account whether you can afford the loan based on your current status, not what happened in the past and your credit rating.
Short term loans are suitable for everyone who needs to get their hands on cash quickly for any circumstances. There are both pros and cons to a short term loan that should be weighed up.
Short Term Loan Pros
- People with bad credit are more likely to be approved for this type of loan;
- Applying for the loan can be undertaken online;
- No paperwork involved;
- You know if you are approved in just a few minutes;
- The online application is easy and fast;
- You could have money in the bank in a couple of days;
- Easy and fast access to money in an emergency;
- On repaying the loan on time, you are proving you are reliable, which may help to improve your credit rating.
Cons of the Short Term Loan
- It can be tempting to keep taking out short-term loans;
- You have to bear in mind that if you have to repay the loan from your next payday, you will be left short of money on that payday;
- Short term loans may have a higher rate of interest than other types of loans.
Now that we have established what a short term loan is, we will take a look at what bad credit really means.
What Is Bad Credit?
You might have been informed that you have bad credit or have a poor credit rating. What exactly does bad credit mean and how did your credit become bad?
Your credit rating is assigned to you by credit agencies. This is a score based on numerous factors in your past. These include:
- Loan or credit card repayments made late;
- Entering an IVA, Individual Voluntary Arrangement;
- Having A CCJ, County Court Judgement;
- Applying for credit;
- Overspending on your credit limit or getting close to the limit;
- Constantly making only the minimum repayment on the card;
- If you have never applied for credit in the past.
The term bad credit is even more confusing when taking into account that lenders will look at your credit rating differently.
It also means that just because one lender thinks your credit score is too low, another might not and they might be willing to offer you a loan. Generally, when applying for a short-term loan the lender does not put too much emphasis on your credit score. Instead, they put more focus on whether you can afford to pay back the loan with your current income.
Put the two together, short term loan and bad credit, and the result is loans that are specifically aimed towards those who meet these two requirements.
- The need to get their hands on a small amount of cash fast and who can repay it within a short period;
- Who also have a bad credit rating.
Do Lenders Check My Credit Rating for Short Term Loans?
In the UK, all lenders are required to check the applicant’s credit rating before deciding whether they can have credit or not. We work together with lenders who will not put too much emphasis on the credit rating. Nevertheless, your credit rating will be checked.
There are two types of credit check. These are the soft credit check and the hard credit check.
The Soft Credit Check
The soft credit check is the least intrusive. This is an initial check taking some of the information into account on your credit report. This means lenders do not consider the entire credit report. This type of credit check is not visible to companies and this is good for you, as it will not have any effect on your credit file.
Typically, when a hard credit check is undertaken it is visible to companies and it will be reflected on your credit score. Applying for too much credit, whether approved or not, will affect your credit rating.
The Hard Credit Check
The hard credit check means that all of the information on your credit report is checked. It also means that the check is recorded. A hard credit check is the type utility providers and cell phone companies undertake if you want to take out a phone contract and utility service.
Again, the lenders we work with consider all circumstances, such as your income.
In What Circumstances Might a Short Term Loan be Suitable.
There are no specific circumstances in order to take out a short term loan; however, this is a financial product that is more suited when only a small sum of money is needed urgently. This type of loan is not suitable if you want to borrow a huge sum of money, say to purchase a new car.
The reasons below are just some of many where this type of loan might be more suitable than other types:
Unexpected Large Bills
You might have forgotten all about a large bill that is due. Before you know it, the bill has to be paid and your payday is still three weeks away. In this instance, a short-term loan for three weeks would allow you to pay the bill and avoid extra charges being added onto the bill and keep the light and heat on at home.
Following Redundancy or Retirement
If you have been made redundant and are looking for a new job, you might have to wait a couple of weeks for your redundancy money to come through. In this case, a short term loan to tide you over until the money comes through could bridge the gap. The same applies if you have retired. You might have to wait for your pension to be paid.
A New Baby
You will have budgeted and saved money upon knowing you are going to have a baby. However, there is no denying that babies are expensive. You might find yourself unexpectedly short of cash and a short term loan may provide a helping hand.
Breakdowns and Repairs
A large appliance such as white goods might break down and need repairing and you do not have the money until payday. You might have to buy a new tire if yours suffered a puncture that cannot be repaired. Your car might be ready for its MOT and you forgot about putting money aside for it. In any of these instances, a loan over the short term could help.
The above are just a few of the many reasons where a small short term loan might come in very handy for a couple of months or more.
Are You Eligible for Short Term Loans Bad Credit?
As with any type of loan, you do need to be eligible to apply for the loan. While different lenders may set out different criteria to be met, some criteria apply to all lenders.
All lenders will ask that you:
- Are at least 18 years of age;
- Have a regular income;
- Have a UK bank account;
- Have a debit card linked to the bank account;
- Have the capacity to set up direct debits.
Understanding the Interest Rate of Short Term Loans
You might have heard the name payday loans or short term loans linked with adverse press in regards to the amount of interest that has to be paid. This is generally because the APR of short term loans is generally listed in the region of 1192% to 1294% APR representative. When you weigh this up against a typical loan with 29.9% APR the APR of the short term loan might sound outlandishly high.
What you do have to bear in mind is that the APR is the annual percentage rate and if you are taking a loan over two to three months, you will not pay interest over the year.
Another factor to consider is that representative APR considers all the charges that might be associated with the loan, alongside the interest. All loans generally come with charges, which need to be factored into the cost of borrowing.
When taking out a loan you should check to find out how much interest is going to be added on to the loan, along with any fees that will be applied, bringing the loan to the total amount you have to repay.
As an example, if the representative APR was 1294.1% and you borrowed £300 over a period of 65 days you would occur interest of £156. The total amount you would have to repay on the loan would be £456.
If the same loan were spread out over one year at the same APR, it would end up costing thousands of pounds in interest.
Here at Bonsai Finance we work with numerous lenders all offering competitive rates of interest on loans suitable for those with bad credit.
Applying for Your Loan
Applying for your loan with us, makes life that much less stressful, along with less time-consuming. Sure, you could try and find a short term loan and lender yourself, but this takes time and as mentioned above it may affect your credit rating if you make several applications. On the other hand, we work with lenders who offer some of the most highly competitive rates and loans that are affordable.
We do not give loans ourselves but match those looking for loans with an exclusive range of lenders that we work with. The process of finding and applying for a short term loan through us is easy and fast. The lenders we work with offer a range of loans varying from £100 to £5000 to be repaid back from three to six months.
Finding a short term bad credit loan with our help is as easy as clicking on the “Instant Quote” button. You then provide your personal details, which include your source of income, and how much you pay out each month. Lenders will also need your bank account information along with debit card information.
If you are approved for a short term loan, the money is transferred to your bank account. This could be in as little as 48 hours.
We are there to help match you with the perfect lender. The lenders we work with offer rates that are competitive, along with offering numerous loan options. Any loan we help you to find is affordable and as lenders base their approval on your verifiable income, not your past, there may be more chance of obtaining short term loans bad credit. See how much you could borrow today.