What Is A Short Term Loan?
Short term loans offer quick, easy access loans for small amounts of money over a short period of time.
The huge number of short term loan lenders online offering ‘no credit check’ loans makes this form of credit extremely easy to access – and may seem like an ideal solution for someone with bad credit scores, which could be turned down for a loan with high street banks.
Most short-term lenders cap borrowing limits at around £1000, which must be paid back with interest in instalments over a short period of time- usually 1-6 months.
Even though short term loans are subject to tighter regulations that they used to be, they still have some of the highest interest rates in the lending industry and can come with tough repayment terms.
Continue reading to get the full nitty-gritty details on credit checks and short term loans.
Do You Need A Credit Check To Get A Loan?
Lenders don’t have to run a credit check before approving a loan in the UK if they are not members of the Financial Conduct Authority (FCA). However, that doesn’t mean it’s a good idea to go in for a loan with an unregulated lender, just to dodge a credit check.
The FCA is a regulatory body which ensures lenders treat customers fairly. Businesses which are regulated by the FCA have to follow certain behavioral standards and guidelines for responsible lending. Part of this includes running a credit check on borrowers before offering them a loan.
Even though many short term lenders advertise ‘no credit check’ loans, this often isn’t strictly true. A number of these providers may actually be FCA-regulated, but the way they use credit checks is a slightly different way to the way they are used by traditional lenders.
You can check whether a company is regulated by looking on the FCA’s register of regulated organisations.
What About ‘no Credit Check’ Short Term Loans?
You may have seen companies advertising ‘no credit check’ loans before. In truth, most lenders selling this type of loan still run some kind of credit check, but it’s less intrusive than the kind you would have to face if you applied for a loan with the bank.
‘No credit check’ loans run a soft credit check against your name. This type of check just confirms your basic details (such as name and address) and returns a copy of your credit score- but not the full report.
Soft credit checks don’t appear on your credit report, so other lenders won’t be able to see that you made an application if you are refused the loan.
Based on your credit score, the lender offers you a loan and interest rate. If you agree to their terms, you’re ‘pre-approved’ for the loan. At this stage, the lender runs a full credit check, as required by regulatory authorities, but in effect, the loan has already been approved.
Because lenders take on extra risk by not running full credit checks before they approve applications, these loans tend to have very high-interest rates.
Why Are Credit Checks Important?
Your credit report is a snapshot of your financial history which shows how you manage your debt. Lenders use it to try and predict how you’re likely to behave in the future and decide whether it’s a good idea to lend you money.
If you have paid back all your debts in the past, you’re a low-risk to a lender. They can be fairly sure that you’ll pay them back, with interest, and they won’t lose their money. In fact, they can be fairly sure they’ll make a profit.
On the other hand, for someone is consistently late paying back their debts or has a history of defaulting; the lender can assume they are struggling financially. This makes them a high-risk investment because there is a good chance that they will not manage to pay back the debt on time- or at all.
Credit checks are important because they help lenders make intelligent decisions about their investments. But that’s not all: credit checks protect consumers from taking on debts they can’t afford to pay back.
If, after seeing your credit report, a lender decides there is a strong possibility you won’t pay back a loan, there’s a chance they are right.
By not giving loans to people with bad credit, lenders protect their investments and consumers are protected from getting trapped in a cycle of debt.
Is It Possible To Get A Short Term Loan Even With Bad Credit?
Short term loan companies accept people with bad credit at higher rates than many banks, so if you have bad credit and are confident you can afford to repay your debt, a short term loan could be worth considering in a pinch.
However, the short repayment period and high-interest rates of short term loans means that they can be difficult to repay if you don’t plan well.
It is important to remember that your credit score will be negatively impacted if you are late in repaying or defaulting on your loan.
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
To apply and see what loan is available to you, click on the below and answer the questions