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Short term loan debt. How to deal with arrears

Short term loans are a lot like payday loans. The difference is:

  • They are usually paid back over a longer period of time
  • You can pay in instalments
  • They are aimed at people who:
    • Might struggle to get a bank loan
    • Have poor or bad credit history
  • The interest rate is usually a lot higher

Is a short term loan right for you?

Short term loans can be an easy way to get money fast. But:

  • They are expensive
  • They can leave you worse off
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Types of short term loans include:

If you are going to borrow, you should:

  • Make sure you can afford the full amount – including interest
  • Think about what happens if you cannot pay at some point

household bills iconDo you use short term, high interest credit to pay for essentials?

This may be a sign that you need help. Find out how we can help you.

Cheaper ways to borrow include:

  • Arranged overdrafts
  • Credit unions

If you have a low income and need emergency help with money, try:

What are the interest rates?

Short term loans usually have high interest rates.

This can cause serious financial problems, even if you pay over a long time.

It is important to know:

  • How much a short term loan will cost you
  • How much interest you pay back
  • Let's say:
    • You borrow £600 for 12 months
    • You pay it back on time
    • You will repay approximately £1100

    What happens if I fall into arrears?

    If you miss payments on your loan:

    • Extra interest could be added
    • Charges could be added

    You will get a default notice if you cannot pay for a long time. This means the creditor can:

    • Pass the debt to a collection agency
    • Take court action

    Take steps to deal with debt before it gets worse.

    Struggling with a short term loan?

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Do I need a short term loan?

Do you need a short term loan to cover:

  • Rent?
  • Mortgage?
  • Utilities?
  • Other priority bills?

The best thing to do is get impartial debt help.

You may need money in an emergency, but look at all your options before getting a loan.

Did you borrow money from someone you know?

It can be a big relief when someone offers you a loan. This could be a friend or family member, or someone who lives nearby.

Whoever it is, make sure to check a few things.

They may not be a loan shark or illegal lender. But loan sharks can be hard to spot.

They may use trust or friendship to trap you in debt.

Read our guide to loan sharks to find out more.

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

Short term loans can seem good if you:

  • Struggle to get credit, or
  • Have bad credit

But there are other options.

Credit union loans

A credit union is similar to a bank.

Credit unions are non-profit community-based organisations that can offer:

  • Loans
  • Savings
  • Accounts

Most credit unions:

  • Lend small loans of around £50 to £3,000
  • Lend at a lower interest rate than short term loans

Budgeting loan

You can apply for a budgeting loan if need money for basics like:

  • Clothes
  • Furniture
  • Rent

You need to be on 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

You need to apply for a Budgeting Advance if you are on Universal Credit.

Things to know:


  • Budgeting loans are interest free
  • You might be able to borrow between £100 and £1,500
  • You usually have two years to repay
  • The money goes into the same account as your benefits

Struggling to repay your loan?

Seek debt advice if you are struggling to pay back a short term loan.

Borrowing more can lead to larger problems.

Use our online debt advice tool to get help at a time that suits you.