What Is Short Term Loan and Can You Get It With a Bad Credit Score?

Short term loan means borrowing money on interest for less than one year. The amount borrowed can be a minimum of £50 to £1000 max. Borrowers need to repay the loan in monthly installments including the interest.

Financial Conduct Authority [FCA] categorizes short-term loans as HCSTC [High-cost short-term credit] because of their high-interest rates. You don’t need any kind of collateral to obtain short-term loans, which means it is unsecured.

Eligible criteria for short-term loans

Eligibility can differ from one direct lender to another, so check before applying.

  • 18 years or more.
  • A resident of the United Kingdom.
  • Earning regular monthly salary.
  • Afford to make a monthly payment.
  • Have no outstanding debt.
  • You don’t have a bad credit score.
  • Have a valid bank account & debit card.

The loan application will need approval from the lender. The responsible lender will perform credit and affordability checks.

Is a short-term loan application approved if you have a bad credit score?

Credit scores differ from one credit score agency to another.

  • The lenders consider applicants with a minimum of 670 credit scores as low-risk borrowers.
  • Scores around 580 to 669 are regarded as ‘Sub-Prime’. It means the borrower is not eligible for a better loan term.
  • Applicants below 580 are categorized as ‘Poor Credit’ and have slim chances to get credit or better loan terms.

Lenders have their terms while assessing the loan application. For one lender you will not be a suitable applicant but for another, you may be perfect. Your creditworthiness is determined by your credit score, credit history, and income.

The lenders even check for overdue bills or delayed repayments to get an idea if you are financially struggling. If your credit score is around 550 or 580 expect not to get the best deals or you will have to repay exorbitant interest rates [possibly more than 30%]. If your credit score is above 700 then you will be offered low-interest rates. So, it is sensible to borrow a loan only if there is an emergency or you can fall into a debt snare.

Never apply for a short-term loan for …..

  • Unnecessary luxuries like costly holiday trips to a foreign land.
  • Unessential shopping.
  • Nights out.
  • Expensive addictions and habits like gambling.

A short-term loan is not a rolling credit form because depending on HCSTC can pull you into a bad debt hole, which is hard to overcome and can cause more financial stress.

When to apply for a short-term loan…..

Apply for short-term loans only during a financial emergency like –

  • Emergency medical treatment.
  • Necessary home repairs like a broken boiler or essential appliances like a washing machine.
  • Emergency car repairs.

Short-term loans have a purpose but are costly credit forms. If you are under financial stress, it is not the only option. Borrowing a loan you are unable to pay back on time can leave a mark on your credit report for 6 years. It will make it hard to get credit down the road in the future.

So, understand the loan terms completely and know the amount you will have to repay every month. Check total repayment because the payback includes interest, which will surprise you.

It can be an expense you are not keen to accept. You will never be attracted to borrowing more than necessary or spending funds on unnecessary activities.