Short Term

Short Term Loans

A short term loan lets you borrow a small amount of money, with a repayment period usually under 12 months.

Finding the best short term loan for you

By Laura Rettie, Personal Finance Journalist.

Laura Rettie

Short term loans can be useful for many people. Understand how they work and how to get the best out of them with our guide.

What are short term loans?

Short term loans are cash loans for short term lending. Short term personal loans are paid back more quickly than a standard personal loan, and you’ll often pay a higher interest rate.

You can borrow anything between £100 and £5,000 from a direct lender or online broker. Small short term loans are often available instantly and repaid between one and 12 months.

It’s an unsecured loan, which means you don’t need to offer your property or a high-value asset as security against the loan.

How do short term loans work?

Short term loans work in the same way as a personal loan. You’ll borrow a cash sum and pay it back with interest over an agreed period of time.

The interest rate indicates how much money you’ll pay back on top of the amount of cash you borrowed.

Short term loans with low interest rates are hard to find and the rate you’ll pay could be as high as 99.9%, so check the annual percentage rate (APR) you’re quoted and the total cost of the loan before you agree to anything. Here's an in-depth look at how personal loans work.

What are short term loans used for?

You can use a short term cash loan like a personal loan, which means once the money is in your bank account you’re free to spend it how you want.

Common reasons for a quick short term loan are:

  • emergency funds
  • a family event
  • household appliances
  • car repairs
  • to cover bills or rent

Short term loans are not cheap, but they can help if you’re temporarily short of cash or just need a quick short term loan to pay for an emergency.

Who can get a short term loan?

You’re eligible to apply for a short term loan if you are:

  • 18 years old or over
  • A UK resident
  • Own a bank account

You will need to provide evidence that you can repay the loan and will need to pass affordability and credit checks.

Instant short term loans are sometimes easier to get than a personal loan from a bank, but they’re not cheap and you’ll be charged a higher rate of interest.

Can you get a short term loan with bad credit?

Yes, you can, but you’ll pay higher interest rates and you may not get the amount of money you want.

It’s unlikely you’ll get a cheap short term loan from a high street bank because banks view people with a poor credit history as high risk.

However, there are lots of money lenders who’ll consider you for short term lending and you’ll find it’s easier to get a loan from an online direct lender if your credit score is poor.

What’s the difference between short term loans and payday loans?

Although both are considered short term high-cost loans, there are some key differences.

A short term loan is typically taken for anything between a few weeks and 12 months, whereas, a payday loan is usually only borrowed for a few days or weeks - or until pay day.

The interest rate on a short term personal loan, while high, is lower than a payday loan. High cost, instant payday loans should be avoided because they are very expensive and could leave you deeper in debt.

Which loan is best for short term?

There are several options to help you with your short term lending needs.

If you need an instant loan to tide you over until the end of the month or a short term loan to deal with an emergency, consider these borrowing options:

The best loan isn’t always the cheapest short term loan because you may not be offered the advertised interest rate. There may also be hidden charges or conditions.

Check the terms of your loan carefully before you sign the credit agreement for things like early repayment charges or late payment fees and find out what the total cost of the loan is before signing.

Also, be aware that when you’re searching online for short-term loans, you may be directed to websites that offer payday loans that have very high rates of interest and fees.

Will a short term loan affect my credit score?

It depends.  Some lenders can pre-approve short term loan applications with just a soft credit check. A soft check allows banks, brokers and direct lenders to check your creditworthiness without affecting your credit rating.

However, it’s likely that lots of loan applications in a short time period could affect your credit score, so it’s best to use a broker instead of going to multiple lenders for short term loans online.

If you repay your short term cash loan back on time and in full each month you can repair your score and improve your credit rating.

What are the advantages of short term loans?

An instant short term loan is a handy way to get finance quickly to pay for emergencies and cash flow problems.

Providing you have a good credit record and keep to your repayment plan, a short term loan can be a cheaper alternative to an unauthorised overdraft or credit card borrowing.

A short term loan can help you:

  • Solve short term cashflows
  • Manage existing debts
  • Deal with an emergency

The best short term loans companies offer low rate loans with flexible payment options so providing you don’t default on repayments, a short term loan is a low-risk form of credit.

What are the disadvantages of short term financing?

A cheap short term loan is worth considering if you need funds quickly and for a short time.  However, there are some drawbacks to consider:

  • Short term loans have high interest rates
  • Your approved interest rate may be higher than advertised
  • You could damage your credit score if you default on repayment
  • Penalties for late or missed payments may be high
  • You could be misled into taking a payday loan

Only take a short term loan as a last option and watch out for very high interest rates from some direct lenders. Some online lenders may try to offer you a payday loan or line of credit which comes with even higher interest rates and fees.

Are there any alternatives to short term loans?

There are several other safe options to consider if you need a short term loan.

Flexible personal loans

This is a personal loan from a bank with flexible repayment terms which means you can repay it when you like without incurring early repayment fees or extra charges. The interest rate may be higher than for a standard personal loan but cheaper than a short term loan.

0% purchase credit cards

This type of payment card allows you to use borrowed money to pay for goods and services.  New credit cards often come with an introductory 0% interest rate which means you can borrow for free for up to 12 months. Find out how 0% purchase credit cards work here.


Some current accounts have a 0% overdraft facility for small amounts of money but If you don't have a 0% overdraft, check whether the interest on an authorised overdraft would work out cheaper than taking out a short term loan. However, don’t go over your overdraft limit, or fees and interest will be very expensive.

Credit union loans

Credit unions are not-for-profit community organisations. Their loans are quite flexible, so you may be able to borrow a small amount over a short term and repay early without penalties. However, some credit unions require you to have saved with them previously and you’ll need to be part of a community.

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.

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Frequently asked questions

How much can you borrow on a short term loan?

You can borrow anything from couple of hundred pounds to thousands. Typically you’ll find short term loans advertised for between £500 and £5,000.

How long does it take to get a short term loan?

Most short term loans are approved or rejected instantly and the funds will be in your bank account shortly after. If you need your short term cash loan instantly, check the timeline with the lender or loan broker.

Do short term loans require collateral?

No, short term loans are unsecured lending which means you don’t need to secure your loan against your home, car or any other asset.

Is a short term loan a good idea?

If you have a short term cashflow problem or don’t have the money you need to deal with an emergency but require funds quickly, then a short term loan is worth considering.  

Only borrow the amount you need and make sure you’re able to meet all your repayments in full and on time before signing the credit agreement.

Consider short term loan alternatives as well and always check the small print.

Are short term loans safe?

Short terms loans are safe if you use a reputable money lender. Check the broker or direct lender is authorised and regulated by the Financial Conduct Authority and on the Financial Services Register.