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.

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)

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.

APR (Annual Percentage Rate) is the total cost of your borrowing for a year and it includes the fees and interest you’ll pay. The Financial Conduct Authority requires lenders to display the APR for all loans. Using the same, standard calculation helps make it easier to compare loans. Think of it as a way of comparing loans on a level playing field, on a like for like basis.

There are also other factors that matter when comparing short term loans. For example, it's helpful to look at the total amount you will need to repay each month, and the overall cost. Before applying for a short-term loan, make sure you feel comfortable with the monthly instalments, and they are realistic for your financial situation.

Most eligibility requirements that apply to short term finance apply to other forms of credit too. Usually, you must:

• Be 18 or older and a UK resident
• Have a regular form of income (some minimums may apply)
• Have proof of address (often for the last three years)
• Have a UK bank account
• Provide your email address and a valid UK mobile phone number
• Not be bankrupt or have CCJ
• Pass affordability checks, credit checks and other checks a lender may perform

You may also be asked for additional information, including bank statements, and proof of employment.

You should contact your lender as soon as possible and ideally before failing or delaying any of your repayments. They may rearrange your payments to make the debt more manageable for you.

Before you apply for a short term loan or any credit for that matter, you should be confident that you can afford the repayments. Failing to pay back a short term loan on time can damage your credit score and potentially affect your ability to get credit in the future, and cause you unneeded stress.

If you are still struggling or need help, you can contact Citizens Advice, Step Change, and The Money Advice Service.