Frequently Asked Questions

Short term loans should only be used in genuine emergencies, where you need money quickly and don't have a cheaper alternative. Even though these are often considered to be small loans, they are an expensive way to borrow money and should only be used for one occasions. For example - your car breaks down two weeks before payday, and you rely on it to get to work, but you don’t have the money available to pay a garage to fix it. Or your boiler breaks down and needs to be repaired.

Short term loans should not be used to make unnecessary purchases or if you are experiencing financial difficulties for some time. Before applying, consider whether a short term loan is right for your current financial situation.

When you compare short term loans, be sure to explore all the available options rather than going to the first popular short term lender. As a quick guide, you may find it helpful to compare the following factors when looking for the best payday loan or short term loan options for your situation:

• Compare the APR and the Representative APR
• Check the monthly payments and total payment you will need to make and ensure you're confident you can make the payments
• Check the lender is authorised and regulated by the FCA - you can look up a lender on the FCA register.
• Before you apply, know exactly how much and when you will need to pay your loan. Late payments on a payday loan will hurt your credit score, and may cost you much more in fees. Defaults will remain visible on your credit report to other lenders for up to 6 years. And finally, consider cheaper alternatives such as a pay advance from your employer or a 0% purchase credit card.

This is down to your current personal finances. It may be helpful not only to compare vehicle finance options and how much your monthly repayments will be, but to also think about all the additional expenses that come with owning a car. For example, fuel, insurance, maintenance and road taxes. Once you have a monthly total for all these costs, you will know how much you can afford to pay back and the loan amount you will need.

Sometimes it's best to be conservative and borrow less. Give yourself a buffer just in case things go wrong. Remember that your car is at risk if you fail to pay back your car lender.

APR stands for Annual Percentage Rate. This is the total cost of borrowing for a year. It includes the interest you have to pay, as well as any standard fees. You will see APR displayed when viewing and comparing personal loans, credit cards, hire purchase agreements and mortgages.

Representative APR is used as a guide to help give you an idea of the “average” cost for a specific loan. It is “representative” or “typical” of what 51% of customers will receive as a rate (or higher) from the lender. However, there is no guarantee that you will get the Representative APR advertised, as the actual rate you receive will depend on your circumstances.

Only choose direct lenders who are authorised and regulated by the Financial Conduct Authority (FCA). All lenders, including payday loan lenders, are required to lend responsibly, ensuring that a loan is suitable for your circumstances and affordable. Using a short term loan direct lender who is regulated and licensed can mean greater protection for you.

However, even with the current UK regulation, there are still unauthorised, rogue lenders attempting to trap unsuspecting individuals.

Before applying for a loan, check:

• The lender is licensed to operate in the UK on the FCA register
• You have all the information you need
• The information you have is clear and easy to understand
• The lender is a responsible lender (they perform necessary checks to ensure the loan is suitable)
• You are applying using a broker or a direct lender (broker acts as a middle man and may provider your details to multiple lenders and providers)

Interest rates is the interest charged on the total amount of a loan. Usually this number is shown as an annual percentage. For example, if you borrow £1,000 for one year, and your interest rate is 12%, you will pay £120 in interest (12% of £1,000). That means you will pay £1,120 in total after a year. This excludes any additional fees, for example, arrangement fees or late payment charges.

APR (Annual Percentage Rate) is calculated as an annual or yearly interest rate. Short term loans and payday loans are paid back in a matter of weeks or months. As a result, calculating the APR on a short term loan can run into hundreds of per cent. The Financial Conduct Authority requires all loans to have the APR displayed and it is a helpful way of finding something in common to compare different loans on a like for like basis.

Another way of understanding the cost of a short term loan is to look at the daily interest charged (which should be no more than 0.8% or 80p a day per £100 borrowed). Lenders are also required to make clear the total cost of the loan (repayments plus interest).

These quick loans may seem a convenient way to borrow money, but the repayments can be costly. Make sure you understand how much you will need to pay back each month and that you can make repayments on time before applying.