Different Types of Short-Term Loans in the UK Explained

If you are looking for a short-term loan in the UK, many different options are available, depending on your specific financial situation and loan needs. Common short-term loans in the UK include payday loans, instalment loans, and cash advance loans.

However, before applying for a loan in the UK, it is important to understand the benefits and the potential pitfalls of any form of short-term loan. For instance, different loans may come with varying repayments terms or allow you to borrow between £300 and £1,000. Nevertheless, it is best to be fully informed before applying for a short-term loan in the UK.

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What Is a Short-Term Loan?

A short-term loan is, as the name suggests, a loan that can be taken out over a brief time period.

Usually, short-term loans in the UK are used to cover immediate financial issues. The idea is that you can repay the loan as soon as you are out of the woods financially. Very often, when you need to borrow money, the internet is one of the first places most people go as many short-term loans are available online.

Most short-term loans will have a repayment period of just a few months, but this will depend on many factors, including the type of loan, amount, lender, and financial circumstances of the borrower.

Short-term loans usually offer a smaller loan amount than traditional loans as they are designed to help those who need quick access to funds. For example, common reasons to use a short-term loan include unexpected home and car repairs or emergency medical bills.

What Are The Different Types of Short-Term Loans Available?

There are two main types of short-term loans: secured loans and unsecured loans.

Secured loans are backed by collateral, meaning that the money is borrowed against something of value, usually a property or vehicle. Because of the collateral, lenders consider secured less risky and may offer lower interest rates.


On the other hand, unsecured loans are not backed by any collateral. As a result, these loans are riskier for lenders and usually come with higher interest rates. These loans, particularly online, will often fall into the category of high-cost-short-term loans (HCSTLs) and will come with potential additional fees.

One loan type may suit you more so than another, depending on your specific financial situation and your loan needs. For example, if you need a larger amount of money and have a good credit score, you might be better off with an unsecured loan as you could potentially benefit from favourable terms. However, if you do not have a good credit score, you may need to look towards specific bad credit loans or a secured option to reduce the risk for the lender.

Conversely, if you only require a small amount of money and are willing to put up collateral, you might find it better to take out a secured loan.

Common Short-Term Loans in the UK

However, there are many more types of short-term loans that you may wish to consider:

  1. Secured loans: These loans are loan options that are backed by collateral. If you default a loan payment, the lender could repossess the item you put up as collateral. The most common types of secured loans are mortgages and car loans. Secured loans can be used for both short-term and long-term use.

  2. Unsecured loans: Unsecured loan options are not backed by collateral. This can include personal loans, credit cards, and student loans.

  3. Fixed-rate loans: Fixed-rate loans have the same interest rate for the duration of the loan term. Mortgages, auto loans, and student loans can all have fixed interest rates.

  4. Variable-rate loans: Variable-rate loans mean the interest rate could change over the course of a loan period.

  5. Bridging loans: Bridging loans are a property-specific loan option and a type of short-term financing which can bridge the gap between two expenses. For example, if you are buying a new house before your old one has sold, you might take out a bridging loan to help you with your finances in the interim and tide you over financially.

  6. Merchant cash advances: A merchant cash advance is a way for lenders to give a business a lump sum of cash upfront. The business subsequently repays with a percentage of its future credit card sales.

  7. Payday loans: A payday loan is a type of short-term loan designed to cover costs between paychecks for any unexpected expenses that may arise. The borrower then pays back the loan on their next payday.

  8. Instalment loans: These loans often offer higher amounts with longer repayment terms. Borrowers repay the loan in equal monthly instalments.

Author Maggie Clarke
Maggie Clarke Content Ops Lead
Maggie leads the content operations team at Doddler.co.uk. She is an expert on personal finance, by way of a lifetime of gathering practical knowledge on what to not do with your pocketbook. When not blogging about money, Maggie can be found rambling through the roughest terrains. She considers herself charming yet troublesome and would love to meet you someday, just not today.
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