Short Term Loans for Bad Credit

Updated: March 28, 2024 Author:

Key takeaways: A short term loan will typically be available with no collateral and will need to be repaid in full within a year or less. Shorter terms of a matter of weeks or months are available from some specialist lenders, but will generally incur significantly higher interest. Short term loans tend to have simpler, faster application processes and are therefore popular with those facing unexpected expenses like car repair or home maintenance. 

What defines a short term loan?

A short term loan is a type of personal loan that will typically need to be repaid within a year. The amount you can borrow will generally be lower than a standard personal loan where the repayments can be spread over a range of 5-10 years, and the interest you will be charged on what you borrow will typically be higher. There will also be short term loans from some specialist lenders that only extend for a few weeks or months. 

One of the hallmarks of a short term loan is the speed of the application process. Fewer checks are generally conducted, although a soft credit check will typically always be carried out. Some lenders will advertise attractive arrangements such as the money being paid into your account within one hour of the agreement being signed, returned, and approved. One of the main reasons the process is so quick is that collateral will not typically be required as part of the application process. This allows you to find a flexible borrowing solution without having to secure it against your home or other property. 

Why might you want a short term loan?

Short term loans are a useful option to consider should you be faced with an unexpected bill or abrupt change in your cash flow situation. Although in the case of the latter, it is essential to make sure you can comfortably keep up with the repayments as missed or late repayments will negatively impact your credit score.  

Common reasons borrowers apply for a short term loan include:

  • Medical Bills: If your circumstances suddenly change and you cannot get everything you need to maintain quality of life from your insurer or the state, a short term loan can help ease the financial burden. Making sure you can afford the repayments while getting everything you need to put things right is the key here 
  • Car Repair: For many of us we need to be on the road if we are going to be able to get to work and pay our bills. When you’re faced with having to replace your vehicle, or pay for major maintenance and repair work, at short notice, the flexibility a short term loan can provide could give you more options 
  • Home Maintenance: Roofs leak and boilers break, and there is never a good time to have to pay for these often costly types of work. If your savings aren’t sufficient to cover the cost of the work, applying for a short term loan can help you protect the value of your property. Taking action earlier can also stop the amount of repair work required, and therefore the cost of the work, from growing over time 

Will bad credit stop you getting a short term loan?

You will always have more borrowing options if you take steps to boost your credit score and improve your rating. The issue is that this takes time, with a period of 12-18 months typically required to see a significant improvement. If your circumstances dictate that this is simply too long to wait, applying for a short term loan from a specialist provider is a viable option. 

The downside of having bad credit when you apply for a short term loan is that you will have a reduced ability to borrow large sums of money. This may restrict the extent to which you can fund repair work and maintenance at short notice. You will also typically pay a significantly higher interest rate than someone with good credit because you will be viewed as of higher risk to lend to. 

If your credit rating is significantly below 550 then you may have to seek additional help as part of the loan approval process. This could come in the form of a guarantor who will underwrite the risk of lending to you by becoming liable for the borrowed amount should you default. Alternatively, you may be asked to put down an asset as collateral and have the loan secured against it. 

What restrictions are there on short term loans?

Short terms are a popular form of borrowing due to their flexibility, and this doesn’t just apply to the speed with which you can make an application. These types of borrowing arrangements are designed to be used for a wide variety of purposes and therefore only come with standard restrictions on what you can and can’t spend them on. 

Here are the common restrictions on short term loans: 

  • You cannot use any of the money borrowed to take part in illegal activity 
  • You should not use a short term loan to gamble or to cover gambling losses
  • You must not use a short term loan to fund speculative endeavours such as  investments

The specific restrictions on what you can and can’t spend the borrowed amount on will be laid out to you in full during the application process. Your ability to meet affordability criteria and keep up with the regular repayments will also be assessed at the same time. 

Are short term loans the only option?

Just because short term loans are quick and straightforward to apply for, even with bad credit, doesn’t mean they are your only option. Depending on your circumstances you may also wish to consider one or more of the following: 

  • Credit cards can provide a flexible funding solution but will require you to repay in full the following month to avoid being charged interest 
  • Savings could be built up gradually or used to cover part of the payment you need to make 
  • Payment plans are offered by some large chain garages that allow you to spread the cost of repair work over several months