There is a lot of jargon that you need to understand if you want to make sure you take out the right loan for you. Perhaps more important though is that you’ve got to be sure about the following in particular:
• how much interest am I paying on my loan?
• how much will it cost each month to repay it?
• can I afford the repayments?
In this article, Best Short Term Loans explains everything you need to know about the words and terms used by lenders.
Important loan terminology
APR (Annual Percentage Rate)
APR stands for Annual Percentage Rate and you’ll see APRs prominently displayed on all advertising for financial products like loans, credit cards, and mortgages.
Lenders work out what the APR of their products are by using an agreed formula set down in law. Lenders can’t change the way it’s calculated and the reason why that’s important is that everyone’s on a level playing field and you can see the facts clearly for yourself.
APR is a way of describing how much it will cost you to borrow money over the course of an average year. In addition to interest rate (more on that later), APR also adds into its calculations any arrangement fees (like you get on a mortgage) or annual fees (like you get on a credit card).
Bad credit loan
A bad credit loan is a type of loan lasting between two months and twelve months which is offered to borrowers whose credit rating is lower than most mainstream lenders feel happy with.
Generally, High Street lenders and major financial institutions only lend money to people with good credit ratings. There are, however, a few hundred lenders in the UK who specialise in working with people who have had problems in the past with money.
Bad credit loans are normally for between £100 and £2,500. Bad credit loans have higher rates of interest than good credit loans meaning that, in general, someone with bad credit will end up paying more money in interest to pay back the loan in full than someone with good credit would.
Bad credit loans must only be offered under special Financial Conduct Authority protections guidelines (more on that later).
To be made bankrupt (or to make yourself bankrupt), you must owe your creditors at least £5,000. For many people struggling with debt, bankruptcy is a last resort. If you are thinking about bankruptcy because the pressure of the debt you owe is getting too much for you, please consult with Citizens Advice or another debt charity before making the decision to go ahead.
If you choose bankruptcy, you may be forced to sell your home and your car, you may have to forfeit some of your pension, and you will find it much more difficult to access finance facilities like a loan or a mortgage.
A loan broker does not lend money to borrowers. Instead, what a loan broker does is match together the right borrowers with the right lenders.
Brokers and lenders work closely together. Lenders will tell brokers the type of client they like to deal with and then, when a broker gets an enquiry, they’ll examine the details on a person’s application form and apply on their behalf to the lenders most likely to say “yes” to their application.
Best Short Term Loans is a broker which matches borrowers with less than perfect credit scores to lenders happy to work with them. Our service is free of charge to you and, if you are accepted, you won’t pay any more interest on your loan than if you had approached the lender directly yourself.
A bridging loan is a phrase you might hear someone say when they are short of money for a few days or a couple of weeks and they wish to take out a loan to cover the financial gap. The correct term for this type of loan is a payday loan or a short-term loan.
An actual bridging loan is used by home buyers and property investors to cover a period of time being buying a property and either selling it or securing a mortgage.
A business loan is taken out to provide working capital for a company, to allow it to expand, or for it to buy assets like machinery and other equipment.
Most personal loans, including bad credit loans, may not be used for business purposes.
County Court Judgement
If you fail to pay money to someone or a company that you owe, they can take you to county court to issue a judgement against you. This makes it easier for your creditor to pursue you for payment. Your creditor may send in bailiffs to recover payment from you.
County Court Judgements severely affect your credit rating and they can make it really difficult to get a loan or a mortgage from a finance company.
Creditrating and credit reference agency
Your credit rating is a number that a credit reference agency gives you. That number rates you on a number of different factors including:
• do you pay your bills on time?
• how much debt are you in?
• how much debt are you not using?
• how many credit accounts do you have open?
The credit reference agency calculates your credit score by considering all of these factors. They know all of this information about you because finance companies and other types of companies (like broadband providers, mobile phone companies, utility companies, and so on) send them reports every month telling them whether you’ve made your payments on time and what the balance on your accounts are.
Your credit score is only one factor, albeit a very important factor, that a finance company uses in deciding whether they want to offer you a loan, credit card, or mortgage.
Credit report search
Every time you apply for a loan, credit card, or mortgage, the company you’re applying to for it will run a credit report search on you with a credit reference agency.
Many lenders don’t like it if they see too many credit report searches on your credit file because they think that you’ve got no money and that you’re desperate to find some cash in a hurry. If you are thinking about taking out a loan, credit card, or mortgage, don’t make multiple enquiries at once because this will actually make getting the finance you want more difficult.
In some cases, it is better to use a broker. A broker will run one credit search and the credit report they download will be used by every company they apply to on your behalf.
Debt consolidation loan
A debt consolidation loan is a type of loan you take out to clear other debts.
An example of a debt consolidation loan would be if a person who owed £10,000 across a number of different credit cards each charging 30% APR took out a loan to pay them all off in full. The loan might have an APR of 10% meaning that they will pay off their debts for less than by keeping the debts on their credit cards.
Debt management plan
Debt management companies offer debt management plans to people who have got into difficulty with their finances.
A representative from the debt management company will negotiate on your behalf with your creditors to make your repayments more affordable each month. This may or may not involve a reduction in the amount of debt you owe – sometimes a lender will say “yes” and others will say “no”.
It is very difficult for people on debt management plans to be approved for any other type of finance while they are still on their plan.
Sometimes, a loan, credit card, or mortgage provider will charge you a default fee if you miss a repayment. For payday loan, bad credit loan, and instalment loans, this amount is capped to £15.
A direct lender is a finance company which lends you money from their own company funds. You can borrow money from direct lenders in two different ways:
• Approach a lender directly, or
• Approach a lender via a broker like Best Short Term Loans
Each lender has their own particular “borrower profile” – that describes the type of person they like to lend to. Very few lenders let borrowers know in detail what they are looking for in an application and this is why up to 75% of applications made direct to lenders are rejected.
Many borrowers prefer to use brokers because lenders share “borrower profiles” with their brokers. This means that, as soon as a broker has your application form, they will be able to match you to lenders whose “borrower profile” you most closely match.
Early repayment penalty
When you take out a loan with a finance company, you will take it out for a set length of time – it could be one month, six months, or five years. Interest is normally added daily to a loan so if you pay your loan off in full early, your lender will not be able to charge you any more interest because your loan is now settled.
Some lenders will fine borrowers for this by charging them up to three months’ worth of interest as an “early repayment penalty”.
Financial Conduct Authority
The Financial Conduct Authority is the body which oversees, among many other things, the lending of money to individuals in the UK.
In order to be able to legally lend money to people, you must be licenced by the Financial Conduct Authority. In addition, brokers who introduce people to lenders, like BestShortTermLoans, must also be licensed by the Financial Conduct Authority.
Financial Conduct Authority protections
For payday loans, instalment loans, and short-term loans, special protections for borrowers have been in place since 2015.
If you take out a payday loan, instalment loan, and short-term loan, these are the extra special protections you receive:
• You must not be charged more than 0.8% interest per day (equivalent to £1.60 for every £200 you borrow)
• If you miss a payment, you can only be charged once for missing it and that charge (or default fee) must be no more than £15.
• If you add together all the interest payments you make and default fees you pay over the course of a loan, it must not add up to more than the value of loan you took out in the first place.
• If you find yourself having trouble paying your loan off, there are certain rules that your payday loan, instalment loan, or short-term loan company must follow.
A guarantor loan is a type of loan you take out where someone will pay the loan back for you if you can’t make the repayments yourself.
These loans are not currently covered by Financial Conduct Authority protections. In fact, the Financial Conduct Authority is, at time of writing, investigating the sector because of the levels of fees and interest charged to people who miss repayment dates.
An instalment loan, sometimes called a short term loan, is a loan made to a borrower which has either 2 or 12 monthly repayments. These loans are covered by Financial Conduct Authority protections.
Borrowers can normally get access to around £2,500 with an instalment loan. Instalment loans, just like bad credit loans, are available to borrowers who don’t have a spotless credit record.
Interest is the charge that a finance company levies for giving you access to a loan, credit card, or mortgage.
Interest rates are shown as percentages. If your interest rate is 10% a year, that means that you pay £10 on every £100 you have left to pay on a loan over the course of 12 months.
Interest rates can be fixed or variable. Nowadays, it is generally only a mortgage whose interest rate can go up or down. When it does go up or down, it does so at the same time as the Bank of England’s base interest rate.
A payday loan is a loan you take out where you pay back the full amount plus interest within 30 days of receiving the money. There is only one repayment date with a payday loan.
Payday loans are available for people with bad credit histories and borrowers can normally take out up to £1,000. Payday loans are covered by Financial Conduct Authority protections.
Personal loans (sometimes called unsecured loans) are loans taken out over a fixed period of time. They’re offered by banks, building societies, and other types of financial institutions. They’re not covered by Financial Conduct Authority protections but they are covered by the Consumer Credit Act instead.
As with other types of loans, once you’ve received your money, you then pay it back together with the interest in monthly instalments. You can borrow up to £25,000 on most personal loans but, if you want to borrow any more than that, you will normally have to offer security (more on that later).
Banks, building societies, and more mainstream financial institutions generally only lend money to people with very good credit ratings.
A quick loan can either be a payday loan, a bad credit loan, a short-term loan, or an instalment loan. They’re called “quick loans” because many lenders will pay money direct into your bank account within an hour of receiving and approving your application.
Most types of quick loans are covered by Financial Conduct Authority protections.
A repayment schedule is an agreement you come to with a lender and it details exactly how much you’ll be paying back and on what dates. When you take out your loan, it is your responsibility to make each repayment in time and on full. Lenders normally use a direct debit or a continuous payment authority (linked to the debit card on your bank current account) to collect repayments.
If you miss a repayment, you may have to pay a default fee. If you miss multiple repayments and your lender does not think you’ll be able to pay the loan back, they may attempt to take out a County Court Judgement against you.
A representative APR is the APR offered to at least 51% of a lender’s customers.
When you see a representative APR on a lender’s website or an advert, this is the rate of APR your loan is likely to be given. You may pay more but, on some occasions, you may also pay less.
If you take out a secured loan, you offer something which the lender can take off you if you can’t pay back the loan. The most well-known type of secured loan is a mortgage.
Other types of secured loans include a logbook loan (where you pledge your car) or a loan from a pawnbroker (where you pledge jewellery, other valuables, electrical equipment, and white goods).
Traditionally, secured loans offered lower rates of interest to borrowers than secured loans. However, logbook loans are currently under investigation from the Financial Conduct Authority over concerns about the levels of interest on logbook loans and the size and frequency of fines and fees borrowers have to pay when they contact their lender or if they miss a repayment.
Get a payday loan, bad credit loan, or instalment loan that works for you
At BestShortTermLoans, we’re not lenders. We are highly experienced credit brokers. What this means is that we help those looking for cheap short term loans to find the best possible deal for their individual situation.
Thanks to our close relationship with our lending partners, we know just the types of borrowers who they are happy to lend money to. When you submit your details into our smart and ultra-quick computer system, we are able to match you with the loan company most likely to accept you for credit within seconds.
We’ll help you find the lowest possible price for the loan you need. You’ll know exactly how much you’ll need to repay each month and for exactly how long with no hidden costs or fees – meaning you can effectively budget for all of your repayments.
We do all the hard work for you and our service is completely free of charge. You don’t have to accept any loan offer we find for you. You’re in control at all times.
Remember that you should only take out a payday loan, bad credit loan, or instalment loan to cover emergency situations.
So, if you need money to cover a surprise expense without impacting on your budget, apply with Best Short Term Loans today.