Borrowing in the UK: The Differences between Short-term and Long-term Loans

February 25, 2019

Short-term loans are, like their name, carried out over a shorter period of time than other loans. This can be quite beneficial for the borrower, but it is imperative to be careful. Interest increases over the period that the money is borrowed, sometimes even daily. Short-term loans, if used correctly, can help you get out of a jam, but comparing them to other loans reveals their associated risk.

Quick Cash vs. Long-term Borrowing

Short-term are designed to lend money to people who are in a tough position. For example, if you need to get work done on your car or need emergency medical treatment, a loan can help you cover the costs. Short-term loans have high interest, are taken out over a predetermined period, and need to be paid back before a certain date. As you pay in installments, you must be aware that the interest may be going up. Still, they allow you to get money fast, sometimes within the day, without having to pay it back right away.

Both secure and unsecure loans can have much longer borrowing periods, ranging from the uncommonly short six months to decades. Guarantor loans are borrowed with a third-party vouching for the borrower who will have to repay the loan if they are unable to. Secured loans use property and other assets to leverage for loans over longer periods. Peer to peer loans have borrowers taking loans from individuals and small institutions like credit unions. Unsecured loans are probably the most complex, requiring wide-ranging financial agreements between the lender and the borrower.

Interest & Fees

In the UK, short-term lenders are not allowed to charge more than £24 for every £100 you borrow in 30 days. It is important to find the lenders who will not charge the full amount so you can pay less interest. Lenders are also not allowed to charge interest and fees that add up to more than the initial amount you borrowed. This goes for however long your loan was taken out. To see the full benefits of the short-term loan, you should make sure to pay it back as soon as you can.

While interest rates vary form loan to loan, longer termed loans typically have lower rates than short-term borrowing. Peer to peer loans have some of the best rates, and though others may have lower rates they may still hold tremendous risk.

Applying for Loans

Lenders typically want to know about your financial situation when taking out short-term loans. They may want to know your job, age, residence, bank account information, and mobile phone number. You will likely be approved a lot faster for a short-term loan while other more complex loans take longer because you will typically borrow for longer.

According to the site MoneyPug, which is commonly used in the UK to compare the best online loans, lenders may perform credit and affordability checks instructed by the Financial Conduct Authority (FCA). If you have been denied credit from someone else, this doesn’t mean that you won’t be approved for a short-term loan. For other loans, however, lenders will show more scrutiny.


The majority of short-term lenders will allow you to pay back the loan early. It is important to ask the company about their early repayment options. Needless to say this is always a good move to lower interest and get the nagging weight of debt off your back. Since many lenders charge interest daily, paying your short-term loan back as soon as possible is cheaper than delaying repayment.

While shorter loans may be easier to repay, long-term loans will have a stricter schedule. Short-term loans are used for their speed and flexibility, but using them wisely is crucial. If you understand the interest rate increase of your short-term loan, you will be better equipped to pay it off quickly and avoid unnecessary interest hikes

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