Short term loans can be the quickest, most convenient solution to a financial emergency. Applying for a short term loan can take a matter of minutes, with successful applicants receiving their funds in under an hour in some cases. Although quick and convenient, comparing loan providers can become a little confusing. This guide explains how you can compare payday loans and instalment loans, and why it is a good idea to use a comparison website.
What are short term loans?
Both payday loans and instalment loans fall under the category of short term loans. These are generally much smaller amounts taken out over a shorter period of time; usually ranging from one to six months. Long term loans however tend to start from around 12 months. Long term loans are for larger amounts, over a longer period of time.
While payday loans and instalment loans have many similarities, there are some differences. The main difference between the two being the repayment period. Payday loans are usually paid off in one lump sum on your pay date. An instalment loan however is paid off in agreed amounts over a number of months.
Short term loans are quite often classed as ‘unsecured loans’. For these type of loans, the lender does not require any collateral. Another difference between short term and long term loans, is there are fewer requirements when taking out a short term loan. Certain criteria must often be met, such as age and employment status; however there are fewer requirements when compared to a traditional bank loan.
Another difference between short term and long term loans is you can apply for long term loans through a mainstream conventional lender, such as bank or building society. Short term loans tend to be taken out through alternative lenders.
Alternatives to short term loans
Although the interest can be quite high, a short term loan is often the cheaper form of borrowing in terms of interest when compared to an unauthorised overdraft. Overdrafts can cost as much as 12 times more in interest than a short term loan. Payday and instalment loans are regulated by the Financial Conduct Authority (FCA), and have a capped interest rate at 0.8% per day. There are currently no such regulations in place for unauthorised overdrafts.
Comparison websites are a great way to compare payday loans and instalment loans and the lenders offering these products.
Compare payday loans and instalment loans
Comparison websites are free to use, and they’re a quick and convenient way to check lenders without carrying out too much leg work. Comparison websites will usually only compare payday loans and instalment loans from a direct lender, and they will not include brokers in their comparison.
Using a price comparison website means you simply have to enter the amount you wish to borrow and for how long – the comparison site will then generate a list of lenders which meet your criteria. Price comparison websites allow you to filter your search based on a number of options. These include – but are not limited to – highest available amounts, lowest late fees and lowest representative APR. They will also often include a representative example beside each lender. This makes it a little clearer to be able to see how much the loan will cost in total.
Some comparison websites will include information such as when the lender first started trading, minimum requirements and the types of credit checks the company carry out. Some will also allow you to filter some options such as age, employment. You may wish to filter these to find out if the company have a maximum or minimum age requirement to be able to apply for a loan. You may also want to know if the lender has a minimum wage requirement as part of their application process. Some comparison websites allow you to filter options such as these.
When you compare payday loans and instalment loans, not all comparison websites will include whether the loan carries any additional fees and charges. It is worth carrying out a little more research in order to make sure you don’t get stung at a later date. FCA regulations mean any charges and fees must be stated on the lender’s website – so a little digging around may be enough to get this information.
Another thing to bear in mind is that not all lenders will show up on a price comparison website. Carrying out additional research into other lenders on the market is also recommended to ensure you do not miss out on a good deal.