When you need cash fast, you might look at short term loans or payday loans. Both can help with urgent bills, but they work in different ways. This guide will help you understand the key points in short term loans vs payday loans so you can pick the right option for your needs.
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What Are Payday Loans?
Payday loans are small, quick cash loans. You get the money fast and repay it on your next payday. Most payday loans last just a few weeks. The amount is often between £100 and £1,000.
Payday lenders can approve your request quickly. You need a UK bank account and proof of income. Many payday loan companies do a credit check, but some will consider people even with bad credit.
You repay the full sum in one go. This means the payment can be large. If you cannot pay on time, fees can add up. This can cause you serious money problems if you are not careful.
What Are Short Term Loans?
Short term loans also give you cash quickly, but you repay over a longer period. The loan term can be from one month to 12 months. This makes payments smaller and easier to manage.
You can borrow more money with a short term loan than with most payday loans. Short term lenders may offer up to £1,500 or more. You still need a bank account and some proof of income.
A repayment schedule spreads the cost. This can help you budget better. You pay a bit each month instead of one big sum. Most lenders will do a credit check, but many will consider people with a poor credit score.
Key Differences: Loans vs Payday Loans
The main split in the loans vs payday loans debate is how you repay. Payday loans need full payment in a short period. Short term loans let you pay over a few months.
Interest rates can be high for both. But the cost depends on how long you borrow. A payday loan might cost less in total because you repay it fast. A short term loan might have more interest over time, but smaller payments each month.
Here is a quick look at the main points:
| Feature | Payday Loans | Short Term Loans |
| Loan Term | Few weeks | 1 to 12 months |
| Repayment | One lump sum | Monthly payments |
| Loan Amount | £100 to £1,000 | £100 to £1,500+ |
| Credit Check | Yes | Yes |
| Best For | Very quick cash needs | Spread out payments |
How Do Interest Rates Compare?
Both payday loans and short term loans can charge interest at high rates. The interest rate is often shown as an APR. This can look very high for short loans because APR is based on a year.
A payday loan might have a high APR, but you only borrow for weeks. So the actual cost might be lower than you think. A short term loan over a longer period will cost more in total, but each payment is smaller.
Always check the total cost. Ask how much you will pay back in full. This helps you see the real price of the loan. Some lenders show this clearly on their sites.
Which Loan Is Right for You?
Pick a payday loan if you need a small loan and can repay it fast. This works well if you have a big bill due before your next pay. Make sure you can afford the full repayment amount on time.
Choose a short term loan if you want to spread the cost. Consider this if you need a larger sum or cannot pay it all at once. Monthly repayments may be easier to fit into your budget.
Think about your situation and your income. Do not borrow money that you cannot afford to pay back. Both loan products can help if used wisely.
Can You Get These Loans with Bad Credit?
Yes. Many payday loan lenders and short term lenders will consider people with bad credit. They look at your income and bank account history more than your credit score.
A credit check is still done. This shows up on your credit report. But other lenders may still approve you even if your score is low. An offer of credit is subject to status and affordability checks.
Be careful with multiple loans. Taking out too many can make problems worse. It can also hurt your credit score over time.
What About Secured Loans?
A secured loan needs you to use something you own as security against the loan. This could be a car. As Secured loans are different from payday loans and short term loans. They often have lower rates because the lender has less risk.
But if you cannot pay back a secured loan, you could lose your asset. Payday loans and short term loans are unsecured. This means you do not risk your things, but the rate is higher.
Unsecured loans are typically used for quick cash over a short period. Secured loans are generally used for larger sums borrowed over many years.
How to Apply for a Loan
Applying is simple. Most payday loan companies and short term lenders let you apply online. You fill in a form with your details and account information.
You will need:
- Proof of income
- A UK bank account
- Your address and contact details
- ID such as a driving licence
The lender will do a credit check. They will also see if you can afford the loan. If approved, the money can reach your account the same day.
Always check the terms before you sign.
Can You Pay Off Your Loan Early?
Yes, you can often settle a loan early. This could save you money on interest charges. It reduces the total interest you pay. This is true for both payday loans and short term loans.
Check with your lender first. Some may charge a fee.
If you took out the original loan and now have funds, contact your lender. Ask how to settle the balance. This can free you from debt faster.
What Happens If You Miss a Payment?
Missing a payment can cause you serious money trouble. You could face late repayment fees. These add to your debt. Your credit score may also drop.
If you think you will miss a payment, contact your lender right away. Most lenders will try to help. They may offer a new repayment plan or give you more time.
Do not ignore the problem. Issues get worse if you do nothing. Talk to your lender or seek free service advice from a debt charity. You can get free, impartial advice from MoneyHelper at moneyhelper.org.uk.
Are There Any Fees to Watch Out For?
Yes. Both payday loans and short term loans can have fees. Common ones include:
- Late repayment fees if you miss a payment
- Interest charges on the amount borrowed
Always read the terms. Ask about all costs before you sign.
Check if there is a fee to settle the loan early. Some lenders let you do this for free. This means you pay less interest over time.
How Do Payday Loans and Short Term Loans Affect Your Credit?
Both types of loan show up on your credit report. If you pay back on time, this could help improve your credit score. It shows you can manage debt.
But if you miss payments, your score will drop. Late repayment stays on your record for years. This can make it hard to get other lenders to approve you later.
Taking out many loans at once can also hurt your credit score. Lenders may think you rely too much on credit. Keep your borrowing low and always pay back on time. You can learn more about how payday loans affect your credit score in our detailed guide.
Tips for Choosing the Right Lender
Not all payday lenders and short term lenders are the same. Here are some tips:
- Check if they are FCA authorised
- Read reviews from other customers
- Compare rates and fees
- Look for clear terms
Avoid lenders who promise “no credit check” loans. All responsible lenders must check if you can afford to repay. If a deal sounds too good, it might be a scam. Learn how to find out if a loan company is legit before you apply.
Use online lenders with a good track record. Check their website for contact details and clear terms. A good lender will answer your questions before you apply.
Alternatives to Payday and Short Term Loans
Before you take out a payday loan or short term loan, think about other options:
- Ask family or friends to lend you money. Always agree a repayment plan before borrowing.
- Use a credit union for lower rates
- Check if you can get an overdraft on your account
- Sell items you no longer need
- Look for local grants or help schemes
These can be other ways to get cash. They may work out cheaper overall. If you have ongoing issues, speak to a free debt advice service. They can help you make a plan. Our guide on how to get out of debt offers practical steps.
Final Thoughts on Short Term Loans vs Payday Loans
Both short term loans and payday loans can help when you need cash fast. The best choice depends on how much you need and how quickly you can repay.
Payday loans are good for small sums you can repay in a short period. Short term loans may suit those who want to spread the cost over a few months. Both have high rates, so only borrow what you can afford.
Always check the cost and read the terms. Make sure you understand the repayment schedule before you sign. If you are unsure, seek advice. Responsible borrowing can help you through a tough time without making things worse.
For more help, visit our guides on advantages and disadvantages of payday loans and advantages and disadvantages of short term loans.
What is the main difference between short term loans and payday loans?
The main difference is the repayment schedule. Payday loans need full payment in one go, often within weeks. Short term loans let you pay back over a few months with smaller payments. This makes short term loans easier to manage for many people.
Can I get a payday loan with bad credit?
Yes, many lenders accept people with bad credit. They focus more on your income and account than your credit score. However, a credit check is still done. An offer of credit is subject to status and affordability checks.
Are short term loans cheaper than payday loans?
Not always. Short term loans may cost more in total because you borrow for longer. But monthly repayments are smaller. Payday loans may have less interest overall but need a large one-off payment. Compare the cost before you choose.
How quickly can I get the money?
Both payday loans and short term loans can be fast. Many lenders approve your loan application quickly. If approved, the money can reach your account the same day. Speed depends on the lender and when you apply.
What happens if I cannot pay back my loan on time?
If you miss a payment, you could face fees. Your credit score may drop. Contact your lender as soon as you know you will struggle. Most lenders will try to help with a new repayment plan or extra time.
Can I pay off my loan early to save on interest?
Yes, you can often settle a loan early. This can save you money on interest charges. Check with your lender first as some may charge a fee. Lenders may let you settle early for free, which helps you clear debt faster.
Disclaimer: The information given above is provided for information purpose only. This is not financial advice.
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