Short term loans are designed to meet more immediate financial payment needs, as well as conveniently providing monies needed for budget purposes, a leisure break, an education or business pursuit.
Where a longer term loan may have higher interest rates and fees, and take a lengthier time to pay off, a short term loan may present more cost-savings over time. Sometimes people set long term goals and apply for long term loans to achieve their end result, such as buying a home. However, even long term goals may be broken down into steps and funded through short term loans.
The purpose of the loan often determines the loan duration, as does affordability of monthly repayments. Short term loans in the UK are sometimes used where there are income delays, such as in meeting business operating costs while waiting on payment of outstanding invoices or to pay bills before wages are received.
When considering loan approval and terms, lenders assess an individual’s credit history to evaluate the likelihood of default and their ability to meet monthly loan repayments. If declined a loan based on credit history, an individual may take steps to improve their credit score or opt to use a guarantor for a loan.
Short term loans may be more favourable for approval because the borrowing amounts are smaller and the convenient loan repayment options ; however, monthly repayment amounts may be higher. Where future income is expected to repay this amount, a short term loan may be a viable credit option.