Short term loan debt. How to deal with arrears

Is a short term loan right for you?

Buy now pay later, payday loans and doorstep loans can be convenient, if you need money fast. These types of loan are an expensive way of borrowing and can leave you worse off financially.  You should make sure you can afford to repay the full amount – including the interest. You also need to think about what might happen if you fall behind with payments.

Relying on short term, high interest credit to pay for essentials is a sign that you might need help. If you’re struggling with money, find out how we can help you.

There are cheaper ways of borrowing, including arranged overdrafts and credit unions. If you're on a low income and need emergency help with money, you may be able to get support from a trust fund or your local council.

What are the interest rates?

Interest rates on short terms loans are usually very high. Although these loans are designed to let you repay over a longer period than a payday loan, repaying money at such high interest rate can cause serious financial difficulties.

It’s important to know how much a short term loan will cost you and how much interest you’ll pay back over the duration of the loan. As a guide, if you borrowed £600 for 12 months and pay it back on time, you’d repay approximately £1100.

What happens if I fall into arrears?

If you miss payments on your loan, extra interest and charges could be added to the debt. If you don’t catch up with the payments you’ll get a default notice. This means that the creditor can take further action, such as passing the debt to a collection agency or taking court action.

It’s important that you take steps to deal with the arrears before the situation gets worse.

Struggling with a short term loan?

Do I need a short term loan?

Taking out a short term loan to cover priority bills such as rent, mortgage or utility bills is only likely to make your situation worse. The best thing to do is get impartial debt help and a practical debt solution.

Sometimes you may need to borrow money to pay for a one-off cost such as emergency repairs or maintenance but before you decide to take out a short term loan you should consider the alternatives to borrowing in this way.

What are the alternatives if I have a bad credit record?

Many people take short term loans because they struggle to get credit elsewhere or they have bad credit. If you need to take out a loan you should consider the alternatives.

Credit union loans

Credit unions are non-profit community-based organisations that can offer loans, savings and accounts for their members’ benefit. A credit union can be a way to take out credit if you’ve been declined by a bank. Like short term loans, most credit unions lend small loans of around £50 to £3,000, but usually at a much lower rate of interest

Budgeting loan

You can apply for a budgeting loan if need to borrow money to pay for essentials like clothes, furniture or rent. You’ll usually have two years to repay it and the money is paid into the same account as your benefits. Budgeting loans are interest free and you can borrow £100 to £1,500, depending on your situation.

To get a Budgeting Loan you must have been getting one or more of these benefits for the past 6 months:

• Income Support
• income-based Jobseeker’s Allowance
• income-related Employment and Support Allowance
• Pension Credit

If you're on Universal Credit you'll need to apply for a Budgeting Advance instead.

Struggling to repay your loan?

If you’ve taken out a short term loan and you’re struggling to repay it, you should seek debt advice from us. Borrowing more money can begin a cycle that leads to a larger debt problem.

We can give you expert advice on the best way to deal with your debts. Use our online debt advice tool or call us (free from all landlines and mobiles).