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Short-term loans for bad credit

Guide to short term bad credit loans

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Written by  Tim Heming
5 min read

If you’ve struggled with bad credit in the past but need money quickly, you may be worried about being rejected for a loan. Our guide covers how short term loans work and if you can get one with a low credit score... If you need money quickly but are worried you’ll be turned down for borrowing, our guide might be able to help

What is a short-term loan? 

A short-term loan lets you borrow money for a limited time, to be paid back over a period of months rather than years. 

There is no legal definition of a short-term loan, but it’s typically considered to be a small loan amount ranging from a few hundred pounds to a couple of thousand pounds, repaid over one to 12 months

Short-term loans are generally unsecured meaning you don’t need to put your personal possessions, such as your home or car, up as collateral in case you can’t keep up with repayments. 

The funds are also likely to be available quickly, and the interest rates will be high – but not as high as those for payday loans, which are designed to be repaid within a few days. 

Man using laptop

How long will my loan term be?  

Lenders will typically give you a choice of how long you need to repay your loan, subject to certain limits – setting a minimum and maximum loan term, for example. 

A lender might ask you how much you’d like to borrow and how long you’d like to pay it off, offering a choice from three to six months. 

The advantage of extending the loan term is that you can lower the monthly repayments. However, because you are paying back more instalments over a longer period, you’re likely to pay more overall too. 

It’s important to be aware of the terms and conditions of your loan from the outset. You may want to repay the loan back early for example, but you could face a high early repayment charge. 

Are short-term bad credit loans more expensive?  

You’ll usually pay a higher interest rate or APR for short-term loans for bad credit, which can make them more expensive than longer-term borrowing. Short-term loans usually tend to have higher rates than standard or longer loan terms as there is a higher cost associated with providing the loan. 

If you have a history of bad credit you’ll also face higher rates because lenders perceive you to carry a higher risk – that is, you’re more likely to miss repayments on your loan – so they need to charge more for the lending. Short-term loans for bad credit are still an option. You can check your credit score for free with MoneySuperMarket, and see hints and tips on how to boost your score before you apply for a loan. 

What is the difference between a short-term loan and a payday loan? 

A short-term loan differs from a payday loan because it’s generally taken out over a longer period and the interest rate is likely to be lower than a payday loan. 

The term ‘payday’ loan essentially does what it says – it’s a loan to tide you over for a few days or a week or so, usually until payday. As such the loans tend to be for emergencies and quick to get but tend to come with much higher interest rates. 

A short-term loan is typically for a slightly longer period than a payday loan (a few weeks up to around six months) but with repayment periods shorter than those on personal loans, which tend to be paid back from around three to five years.  

Can I get a short-term loan without having a credit check?  

It’s unlikely that you’ll be able to get a short-term loan without a credit check because all legitimate and regulated lenders want to make sure you can handle money responsibly before releasing the funds. 

A credit check allows loan providers to check your borrowing history and see how much of your existing credit you use and whether you have kept up with repayments in the past. 

Can I get a short-term loan with bad credit?  

Short-term loans for bad credit options are possible but it will depend on the terms and eligibility set by the loan provider. 

A credit check is one way a lender can assess whether it’s prepared to give you a loan or not. But lenders look at a range of other factors, such as your regular income and outgoings, to decide whether you can afford the repayments. 

If you do have bad credit, it may increase the cost of the loan because lenders will add more interest to cover the risk you won’t repay in full. 

How can I improve my credit score?  

There are several ways to improve your credit score, but one of the best ways to start is to develop good long-term financial habits by not borrowing more than your credit limits or missing payments. 

One quick step to improving your score is to get registered on the electoral roll or the electoral register – which is what you need to do before you can vote in national elections. You can also check your credit report for free with a credit monitor to make sure there are no errors that need correcting which might be harming your score. 

If you have a low credit score because you haven’t borrowed before then applying for a credit builder credit card and using it responsibly could help prove you can handle credit. 

How quickly do short-term loans normally pay? 

Short-term loans are typically paid out within hours or even minutes once you’re approved for borrowing. 

The process is straightforward. Typically you’ll be asked how much you wish to borrow and how long you’d like to pay it off. 

You’ll then be asked to provide some personal details including your employment status and level of income so the lender can assess your affordability. You’ll need to be aged over 18 and a UK resident. Individual lenders may also have their own criteria you’ll need to meet. 

Once the credit checks are done and your loan is approved, you should receive the money.  

Alternatives to short-term loans? 

While a short-term loan might be one option, it may not necessarily be the right choice for you. Here are some alternatives to consider: 

• Personal loan– typically allows you to borrow more money over a longer period compared to a short-term loan. Interest rates are usually lower, provided you have a good credit score. Like short-term loans, personal loans are unsecured

• Secured loan– you can borrow money over a number of years, provided you put up a valuable personal asset, typically your home or car, as collateral – giving the lender some security to claim should you default on repayments. A secured loan might be easier to get than an unsecured personal loan if you have a poor credit rating. But your home or car may be at risk if you can’t make your repayments

• Guarantor loan– you’ll need a designated friend or family member (the guarantor) to agree to be liable for your repayments in the event you encounter financial difficulties. Guarantor loans are an alternative option for those who might otherwise struggle to get a loan, often due to bad credit

• Credit cards–These function in a similar way to a short-term loan by giving you the option to make purchases and pay the money back later in instalments. As with loans, it is important not to miss any monthly repayments or you could be charged a penalty fee and extra interest. It may be possible to get 0% interest deals – on purchase credit cards and 0% balance transfer cards, but you’ll need a good credit score for these products. If you have bad credit, credit builder credit cards may let you borrow smaller amounts at higher interest rates –but they can also help you improve your credit score over time

• Bank overdraft– using an authorised overdraft on your current account is another way to borrow in the short term. Contact your bank to make sure you have an approved or authorised overdraft, as unauthorised borrowing charges can be high. Even authorised overdraft rates can be higher than short-term loans and credit cards so it isn’t usually a cost-effective way to borrow long term

Other useful guides 

Here at MoneySuperMarket, we have a range of guides you can read on short-term loans: 

Emergency loans explained 

Payday loans guide 

Compare loans with MoneySuperMarket 

We can help you find the right loan to suit your needs. We can search across the market looking at deals and rates from a wide range of leading providers. You can also see which deals you’re likely to get – all without harming your credit score. 

That’s because we use a ‘soft search’, which means we will show you loans you’re most likely to be accepted for without it harming your credit rating so you’ll know where you stand before you apply. 

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers. 

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