Short term loans bad credit is a somewhat controversial topic. We frequently hear stories in the media about how bad they are and why you should not apply for one. However, for many families in the UK, they have proven to be a lifeline. So let us take a deeper look into these types of loans weighing up both the advantages and disadvantages. You can then make your own mind up as to whether they are a good or bad thing.
In this article, we are going to cover:
- They are an option for people with bad credit to borrow;
- Why short term loans are easier to find approval for;
- How short term loans have benefited people;
- Why the loans cause controversy;
- The two types of short term loans available;
- Apply for loans with ethical lenders online;
- Benefits of applying for a loan online with us.
Short Term Loans Are Easier to Get With a Bad Credit Rating
We are going to start on a positive note in regards to short term loans and this is the fact that they do offer a lifeline to people in the UK with a poor credit rating. This is something that is rarely pointed out in the media, as they usually focus on the bad. However, on the odd occasion, the media has reported the loans in good light.
People with poor credit histories often struggle to find lenders willing to accept them for loans. Lenders are not very willing to offer large sums of money if you have a poor credit rating and you cannot really blame them for that. Lending to someone with a bad credit rating generally means there is a bigger risk of the lender not getting the money back.
This brings us to the next point, why are short term loans bad credit easier to find approval.
Why Lenders tend to be More Lenient with Short Term Loans
So, if lenders do not favour people with poor credit why are short term loans often offered to such people?
There is an easy answer to this question. It is because, with short term loans, such as payday loans, the amount requested in only small and the loan is going to be repaid back quickly. This lessens the risk the lender is taking so they are more lenient when offering such loans.
A lender is more likely to approve a loan of between £100 and £1,000 that is repaid in a couple of months than they are a loan of many thousands, spread out over many years.
This is because there is less chance of your current circumstances changing in a couple of months than over many years. Therefore, you are more likely to be able to repay the loan as agreed.
Many People in the UK Have Benefited From Short Term Loans Bad Credit
Many people in the UK do actually benefit from taking out loans over the short term. Without such loans existing, people with poor credit ratings who needed to get hold of money quickly due to a financial outlay that they had not expected, would have been left in a terrible situation.
For instance, payday and short term loans have been used successfully to:
- Pay a large unexpected bill that needed paying before payday;
- Using the funds from a loan to get out of an unauthorised overdraft which would have incurred huge daily fees from the bank;
- Cover the unexpected expense of a vehicle breaking down which is relied on;
- To pay for repairs or replace major household appliances that have broken down;
- Purchase clothing or shoes for children in the event of their being ruined unexpectedly.
Without having short term loans to turn to, people would have endured stress and a difficult life until their next payday.
Why Short Term Loans Are Seen in Bad Light
The media may have portrayed that payday lenders seek out people with bad credit ratings and prey on them. This particular media article was in reference to payday lenders targeting parents who could not afford to purchase school uniforms for the upcoming school term.
It said that lenders were charging over one thousand percent interest on loans. While this may be the case, as the APR shown on payday loans is high, you do have to bear in mind that payday loans are repaid within one to three months or paydays.
This means people are not paying the APR shown. It should also be pointed out that without being approved for such a loan, the uniforms for the children could not have been purchased. Again, causing stress, worry and perhaps ridicule at the expense of the child who did not have a uniform.
Another issue that put the loans in a bad light was fees and interest added onto the loan when people could not afford to repay it in the time agreed.
Payday loans were not designed to be rolled over continually. By doing so, interest accumulates on top of interest and fees. By doing so, loans spiral out of control and do end up costing a great deal more than the amount originally borrowed.
With the FCA now regulating payday loans, they are becoming more transparent and cost less. Lenders are limited to the amount they can add onto loans and the loans rolled over.
Two Popular Types of Short Term Loans
There are advantages and disadvantages to any loan and the payday and short-term loans are no exception.
Most of the controversy has been brought about through people taking out loans that they could not afford or unethical lenders not making the necessary affordability checks.
Providing you know without a doubt that the loan is affordable and you can pay it off in the timeframe agreed, they can be that lifeline.
Borrow with Payday Loans for up to Three Months
Payday loans have the name due to the fact the loan is repaid on payday. Originally, you borrowed a sum of money in the region of £100 to £500 and paid the entire loan back in one lump sum, along with any interest accumulated up until that day.
Today the repayments are more lenient as lenders do allow you to spread the payday loan for up to three paydays or months.
When applying for a payday loan you will notice the APR is much higher than that of a credit card or personal loan. With the latter two, you can expect to pay around 34% interest. Seeing a 1,333%, APR on a payday loan can be frightening and it is misleading if you work out a £200 loan with such an interest rate. As mentioned before this is not the case as you are not taking the loan over the year, only one to three months.
You agree on your pay dates with the lender and the lender will take the repayment for the loan on those dates.
Providing you repay on the payday or paydays agreed the loan is no worse than any other loan. In fact, for people with poor credit ratings, is has benefits, with the main one being a chance to borrow money quickly to avert financial disaster.
Borrow Up To 12 Months with a Short Term Loan
You may be able to borrow up to £1,000 with a short term loan. While the term of the loan is longer than with the payday, it is still classed as not being a long term loan.
Again, the key to success is with ensuring the loan is affordable. By spreading out the loan over a longer-term, you might be able to keep the interest rate down, however, in the end, it does cost in total.
Bear in mind, you do need to make sure that you have the money for the repayments in the bank throughout the term of the loan.
The APR needs to be checked as, unlike the payday loan you will be spreading out the cost for a longer period. Generally, the lower the APR the less interest is going to accumulate over the term of the loan.
Applying for Loans Online with Ethical Lenders
Another key to how the success of short term loans is choosing a loan with an ethical lender. While the FCA is regulating lenders and loans sadly there may still be one or two unscrupulous lenders out still out there.
Ethical Lenders Will Undertake Affordability Checks
All ethical lenders in the UK will undertake an affordability check to make sure that you can afford the loan.
They will want to know how much money you have coming in each month and what you payout. The sum of money left over is classed as disposable income. This means it is income not marked for paying bills or living on. This is money you could use to pay off the loan. The lenders that we work alongside will never offer a loan without first checking to make sure that you can afford it.
Lenders Who Consider Verifiable Income, not Just Credit Scores
We work alongside a panel of ethical UK lenders who consider verifiable income when you apply for a loan with a poor credit rating, not just your credit score. Lenders do have to check your credit rating but usually, when applying for a small loan they will not look too deeply into your past.
The panel of lenders we work with take into account that your past might not reflect your current circumstances and you might now be more financially stable.
There is an eligibility check to pass before the lenders we work with will consider your application. So make sure you:
- Have a regular monthly income from paid work or certain types of benefits;
- Are 18 at least;
- Have a UK address
- Have a bank account in your name in the UK;
- Have a debit card attached to your bank account in your name;
- The bank account is capable of accepting direct debits.
If you can answer yes to all of the above you are eligible to make a loan application in the UK.
Simply provide us with details of the loan you are looking for, including the amount you want to borrow and term of the loan. We can then search with multiple lenders on your behalf from your single application. You do not have to look around for lenders yourself, nor make several applications. Bear in mind, when you make multiple applications they are noted on your credit file and can go against you.
We will give you an instant decision and if approved you are free to go ahead and check out the details of the loan in full.
If you decide the loan is right for you, sign up with the lender and the funds from the loan will be paid directly into your bank account. You can then use the money how you want and repay the loan on time as agreed with the lender.
There are many benefits to applying for a loan online with our help.
- The first is the time it saves as we can search with a large panel of lenders
- You only need to fill in your details once;
- Your search is made with ethical UK lenders who check affordability and verifiable income;
- You get an instant decision;
- We work alongside lenders who offer some of the most competitive rates of interest on loans considering your circumstances;
- Lenders offer a variety of loans suitable for all circumstances;
- You might be able to borrow between £100 and £1,000;
- Lenders offer flexible short term loans, 1 to 12 months.
We hope you now understand short term loans better and if you want to apply for short term loans bad credit get in touch today to find out how we can help you.
Here are some other interesting articles from out website:
Get a Helping Hand with Short Term Loans Bad Credit
All You Ever Wanted To Know About Short Term Loans Bad Credit
An Insight into Short Term Loans Bad Credit