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Short term loan debt. How to deal with arrears

Short term loans are designed to let you borrow money for a longer duration than a payday loan by letting you pay back in instalments. They are often aimed at people with a poor or bad credit history who would struggle to get a bank loan. This means the interest rate is usually a lot higher.

These types of loans are similar to payday loans except they’re designed to be paid back over a longer period of time, usually around one or two years.

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?

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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: these 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 loans: you can apply for a budgeting loan if you’ve been on working age benefits for at least 26 weeks and 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.

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 ous (free from all landlines and mobiles).

Helping you become debt free...

“I wish to thank your staff for all the great help they gave me when I was in so much debt.
They were a pillar of support to me.” (Leslie, Essex)

Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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