Getting a short-term loan is easier than you might think. With so many financial institutions and private lending companies at your disposal, you have various options at your disposal. Taking out a short-term loan is the ideal way to finance a large purchase, such as a vehicle.
You can also use a personal loan to consolidate and pay off outstanding debts. Many homeowners use these loans to make home improvements to increase their property value. Here is what you need to know about applying and qualifying for a short-term loan:
What is a short-term loan?
Otherwise known as a personal loan, a short-term loan is a financial product offered to individuals. A short-term loan is unsecured, meaning that you do not need to pledge assets such as property or vehicles as collateral. Borrowers can apply for short-term loans online, which has come in handy during COVID-19 lockdowns when in-person contact is discouraged.
Many people needing a short-term loan have started using personal lending companies’ services, finding them more convenient than traditional banking institutions. Several such companies have opened their doors in recent years, leaving borrowers spoilt for choice when choosing a service provider.
It is advisable to shop around before settling on a lender, as they offer different terms and conditions. You can choose the one that gives you the best value for money.
Breaking down how you qualify for a short-term loan
Each lending institution or company has its own criteria for determining a client’s eligibility for a short-term loan. However, they fall into three primary categories.
First comes determining the applicant’s identity. There is usually a minimum and maximum age limit between which you are eligible to apply. For example, a company might offer personal loans to people between the ages of 25 and 75. You will need to submit proof of your identity, such as a passport or another document that has a photograph of you and lists your birth date.
Additionally, you need to prove where you live, that you have a UK personal bank account, and a verifiable email address and mobile phone number. Short-term loans from UK firms are only available to full-time UK residents, so you might be asked to provide evidence of your residency status.
Second, comes your ability to repay a short-term loan. You should be able to prove that you have a job and how much money you earn. Some lenders require 3-6 months’ salary advice slips or a letter from your employer. Lending companies assess your application by viewing it as a risk-reward scenario. The risk is lending money to someone who might not repay their debt. The reward is earning interest on loans that are repaid.
Third comes an examination of your past financial behaviour. The lender will do a credit history check. If you have a less than stellar credit score, a lender will not necessarily reject your application out of hand. However, some companies may charge a slightly higher interest rate to balance the company’s potential reward against the risk of lending you money.
During your credit check, a lender examines your financial history, including judgements against you in debt-related matters, liquidations, sequestrations, and bankruptcies. These do not count in your favour, although they might not always exclude you from getting a loan.
The online application phenomenon
Because of the shift online, a lender can do an assessment of your eligibility for a loan within minutes or hours. After completing the requisite forms and uploading the relevant evidentiary documents, automated processes are triggered to determine if you qualify for a loan.
Not everyone receives an immediate response in their favour. Some candidates will receive a message telling them that their application must undergo further investigation before its approval. This applies to those who have some of the financial issues mentioned above. The application process may take a little longer as the company evaluates your eligibility.
Repaying a short-term loan
Lenders charge interest on their loans. This is how they make a profit. When you apply for a loan, you select how much money you wish to borrow and how long you need to pay off the debt. With some lenders, the period could be as short as three months or as long as seven years. Each lender has its own prescribed loan periods, so find one that suits your needs.
Once you have entered your details and preferences, the lender sends you a quotation. This document shows you the loan amount, including the interest charged. It also lists the value of your monthly repayment. Some companies offer variable-rate loans and the instalment changes whenever interest rates are adjusted.
There is a degree of uncertainty to this option that many borrowers do not favour. Instead, they will opt for a fixed-rate loan, where the instalment remains static, regardless of interest rate adjustments.