The Different Types of Short Term Loans

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The Different TypesOFShort Term Loans
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In more recent times the resources available have
been somewhat divided in terms of the product
fundamentals. Changes to the regulating body mean
that today lenders tend to offer more flexible
repayment choices, as well as staying true to
their original product.
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The end result is that consumers now have a
choice between the classic payday loan as well as
the newer instalment loan. Depending upon the
needs of the individual there is likely to be a
loan which can support these, thanks to the
combination of payday and instalment based
borrowing.
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Today we will be investigating these two
different types of short term loans and as such,
looking to understand how these resources exactly
work.
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The first point to make clear is that payday
loans and instalment loans are both simply
different type of short term loans and as such
are both regulated by the same governing body.
The organisation in question is the Financial
Conduct Authority, also known as the FCA.
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Short term loans can be defined as short term and
high cost borrowing given the fundamental nature
of the product being offered. The difference
between the payday loan and the instalment loan
lies in the term of repayment for which the loan
is agreed. Short term loans generally range in
value between 50.00 and 500.00. Some lenders
will consider higher loan values, extending up to
as much as 1000.00 but these higher loan values
are usually dependent upon specific criteria.
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All applications for such borrowing regardless of
the nature of the repayment take place via the
means of an online based application form. These
forms are designed to be very clear and therefore
easy to follow and as such usually take little
longer than 10 minutes to complete.
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The difference between products in terms of short
term loans comes from the variance in repayment
terms on offer. Firstly the classic payday loan,
which many of us will already have knowledge of.
The payday loan allows applicants the ability to
borrow until their next employment pay date. On
this date the payday loan deems that the money
borrowed and the interest chargeable for the
period, be repaid as a single repayment on this
date.
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Depending upon the loan amount borrowed, this
style of borrowing can mean quite a sizable
repayment. Whereas for many years the payday loan
existed as the only type of short term loans
available, the limited nature of repayment term
meant that for some, the resource was not
realistically affordable.
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As such, payday loans are often better suited to
customers who usually have the means to repay a
sizable lump sum but for whatever reason need to
borrow money on a short term basis. Take for
examples a consumer who usually have about
400.00 disposable income, after all normal bills
and expenses have been paid. An unexpected cost
results in a requirement for a short term loan
say for example a broken washing machine with a
replacement value of 200.00.
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So as to avoid having no disposable income for
the remaining month, the customer decides to
borrow via the means of a payday loan. It is
likely that in such instances the repayment
amount would be in the region of 260.00 (for
purely representational purposes) and therefore
the customer could budget to repay the amount on
their next employment pay date accordingly.
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The instalment loan variety of short term loans
entered the market in more recent times and as
such is considered the newer of the two loan
types. The reality is however that the product
itself being small loans over short repayment
periods is very much the same.
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The difference comes in the terms of repayment
being offered. Until a payday loan which deems
that a lump sum repayment must be made to satisfy
the loan, instalment based loans are more
flexible in nature. This means that repayments
can be spread over a number of pre-agreed monthly
repayments.
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Nowadays the terms of repayment available are
good, meaning consumers have choice at their
disposal. Depending on the lender this could mean
repayments over 3 months or 5 months or even 6
months for example. By selecting instalment based
borrowing consumers have the ability to repay
their short term loans in smaller and therefore
more manageable repayment amounts.
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Using the same example as above, instead of
having to repay in a single and one-off style of
repayment, the consumer looking to borrow 200.00
for their broken washing machine could spread the
cost over a number of months instead.
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