Regardless of how carefully you plan your finances, it’s not always possible to know what’s around the corner. Whether you need to replace a household appliance or fix a car, a £1,000 short term loan is one way to bridge the shortfall for a few weeks.
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
“High-cost short-term credit” is a quick and simple but very expensive way to borrow – with interest rates typically higher and loan durations typically shorter than most other forms of credit. This kind of loan is designed to cover a temporary, unexpected shortfall in funds for a brief period. For longer-term issues, it’s definitely not the answer.
If you do decide to take out a short term loan and – crucially – your application is approved, you could have the money transferred the same day. Before taking out a £1,000 payday/short term loan, you should consider alternative options. A good place to find help and advice on this is the government’s money advice service at moneyadviceservice.org.uk.
Payday or short term loans are a very expensive method of borrowing and should only be considered as a last resort. They may not solve your money problems and are not a good idea for borrowing over longer periods or for sustained borrowing.
Before you apply for a short term loan, make sure you’ve considered other options. Is the expenditure you’re planning absolutely essential? If you can defer a purchase, then you could save yourself money in the long run. If you’re struggling to pay a bill, then why not talk to your electricity, gas, phone or water provider to see if you can work out a payment plan? Read more about alternatives to payday loans at moneyadviceservice.org.uk.
Wondering what the difference is between these 3? Well, the first thing to remember is that these aren’t technical classifications – they’re simply terms that are widely used (and not always in a consistent way).
When people talk about a “payday loan”, they’re generally describing a small loan that’s paid back within 1 month – on your payday. The majority of payday lenders now also offer “instalment loans”, where you can spread loan repayments across multiple instalments (normally monthly, but sometimes fortnightly or weekly). Traditional “personal loans“, which you’re more likely to find at a high street bank, allow you to borrow larger sums of money for longer periods (1 year plus).
| 30-day payday loan from a well-known payday lender | 3-month instalment loan from a well-known payday lender | 1-year personal loan from a well-known high street bank | |
|---|---|---|---|
| Availability | Online payday loans are quick and simple, with plenty of lenders willing to focus more on affordability than credit history. £1,000 is at the top end of the loan amounts available, and payday lenders typically want to start with small loan amounts to prove an individual’s ability to repay. | Because spreading repayment makes for smaller, more affordable instalments, lenders may be willing to lend larger amounts if you opt for an instalment loan over a payday loan. Like a payday loan, it’s normally a quick and simple process, with plenty of lenders willing to focus more on affordability than credit history. | Personal loans are available from high-street banks, supermarkets and specialist companies. £1,000 is at the lower end of the amounts available. It can be a slower process with stricter eligibility requirements than a payday loan, but it is quicker and potentially easier if you choose a lender you already bank with (although not necessarily the cheapest option). |
| Fixed interest rates | 0.8% per day (292% p.a.) | 267.75% p.a. | 24.9% p.a. |
| Repayments | One repayment of £1240.00 | 3 monthly repayments of £492, or 13 weekly repayments of £110.08 | 12 monthly repayments of £93.81 |
| Set-up fees | £0 | £0 | £0 |
| Total cost of borrowing | £240 | £431.04 | £125.72 |
| Can I overpay/repay early? | Yes, at any time. This saves you money in interest. | Yes, at any time. This saves you money in interest. | Yes, at any time, but you are charged up to 58 days’ interest on the amount repaid. |
Bear in mind that these are not the only credit options available. You may wish to consider a credit card or an overdraft facility.
In 2015, the Financial Conduct Authority (FCA) capped interest and fees on all high-cost short-term credit loans at 0.8% per day.
They additionally capped all default charges at £15 and the total cost (interest, fees) of loans at 100% of the original sum. This means you’ll never have to pay more than double the amount borrowed.
Eligibility requirements vary from lender to lender, but expect to need to meet at least the following criteria:
A CPA is a recurring payment in which you give a company permission to withdraw money from your account on a regular basis.
A CPA differs from direct debit because it gives the company being paid the ability to withdraw money from your account whenever they wish and take payments of different amounts without consulting you. Most payday loan companies use CPA to collect your repayments. However, you can cancel this at any point by consulting with your bank or provider.
High-cost short-term borrowing is intended as a short term solution and shouldn’t be used to help solve long term financial difficulties. It can provide a quick source of money to help pay for unexpected costs that crop up. At the end of the day, it’s a costly method of borrowing. Therefore, it’s worth considering alternative options for borrowing that may be better suited to your financial needs, such as credit builder credit cards or guarantor loans. As with any loan, you should only take it out if you’re sure you can make the repayments.
Browse our collection of payday loan guides, designed to answer all of your short term loan questions and help you find the right payday loan.
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