If you've found yourself faced with unexpected costs, you might be considering a 3 month payday/short term loan. Use our guide to compare rates from a range of lenders, estimate the overall costs and learn more about how these loans work.
Even if you’ve dedicated hours meticulously planning your finances, life can still throw something at you that you hadn’t bargained on – maybe you need to repair a broken down vehicle or replace a dead laptop. If you’ve found yourself in this sort of situation, a short term loan is one way to bridge the gap.
Unlike traditional “payday” loans which last up to a month, these loans are repaid over 3 months. That means smaller, more manageable repayments, but more interest overall.
3 month short term loans are a fast but very expensive way to borrow, with interest rates significantly higher than most other forms of credit. Before taking out a short term loan you should first consider alternatives such as those outlined at MoneyHelper. If you do opt for a 2 month short term loan, online applications are simple and quick, and if your application is accepted, many providers can have funds transferred to you in a matter of hours or even minutes.
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
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Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.
Is high-cost, short-term borrowing a good idea?
Payday/short term loans are an expensive method of borrowing and are not a good idea for borrowing over longer periods, or for sustained borrowing. They may not solve your money problems.
Before applying for a payday or short term loan you should always consider other options. Is the expenditure that you’re planning absolutely essential? If possible you should defer your purchases as this will save you money in the long run. If you need the money to pay for a bill, it’s always worth speaking to your provider to see if you can organise a payment plan or defer your payment. Read more about alternatives to payday loans at MoneyHelper.
What you need to know about 3 month payday loans
3 month loans are a high interest form of borrowing designed to help you overcome a temporary, unexpected shortage in cash.
Typically you will be expected to make 3 monthly repayments, however some lenders give the option to pay back your loan weekly or fortnightly. If you get paid weekly or fortnightly, this could come in handy. Normally the instalments are equal, give or take a penny, but some lenders (such as QuickQuid), in the first and second months only charge you the interest that has accrued, and then in the third month charge interest plus capital (the amount borrowed). That can be handy if you need a little time to get back on your feet, but it will cost you more in interest over all.
You should only take out a 3 month short term loan if you’re certain you’ll be able to meet the repayments. Failure to do could lead to your credit score being damaged and it becoming harder to secure credit in the future.
Key features of a 3 month short term loan
Small loan amounts. Although some lenders state that they offer short term loans of up to £1000 or more, don’t expect to be approved for this if you’re a new customer – lenders will want to start small.
High interest rates. Interest rates on 3 month short term loans are usually significantly higher than on credit provided by banks. Rates are legally capped at 0.8% – on a 3 month loan of £200, paid off in monthly instalments that’s around £101 in interest overall.
Regular repayments. Normally you’ll pay back a 3 month loan in 3 more-or-less equal instalments – the first being one month after taking out the loan. Many lenders offer borrowers the facility to repay fortnightly or even weekly.
Early repayment. Although when you sign up to a 3 month short term loan you will agree set repayment dates with your lender, it is usually possible to pay all or part of your loan back early. This is generally a great idea, if you can manage it. By paying off your loan early you could cut down how much you pay in interest. Make sure you check the early repayment terms set by the lender before taking out your loan.
Paid back by CPA. Typically when you take out a short term loan your repayments will be taken using a Continuous Payment Authority (CPA). Many lenders give you the option to pay by direct debit or manual bank transfers instead.
Benefits and drawbacks
Spread repayments. Unlike a traditional “payday” loan, a short term instalment loan can allow you to spread repayment over 3 months. That means 3 smaller repayments, rather than one larger repayment. However because you’re borrowing for longer than you might with a payday loan, you’ll pay more in interest overall.
Quick turnaround time. It’s now possible thanks to improved technology and competition between lenders to have a 3 month short term loan in your bank account the same day you apply. As well as giving quick decisions on your loan, many lenders can transfer your funds in a matter of hours or even minutes.
Easier approval. Whilst you must meet certain requirements to secure a 3 month short term loan, many lenders are more willing to provide finance to those with poor credit than banks might be. Many lenders now base their decisions primarily on affordability rather than credit history, meaning that you could secure a loan despite having a bad credit history.
High interest rates. 3 month short term loans typically come with higher interest rates than you would normally see with other forms of credit. Interest rates are legally capped at 0.8%, but many lenders choose to price their loans at or just below this figure, making short term loans a very expensive option.
Not a long term solution. Short term loans are just that – for the short term. They are designed to cover an unexpected shortfall. Don’t expect them to cover or solve longer term financial difficulties. For help and advice on dealing with longer-term financial difficulties a good place to start is the government’s MoneyHelper service.
Disreputable lenders. Be aware that not all lenders advertising online are legitimate. Before taking out a loan ensure you have thoroughly researched the lender and made sure they are approved by the Financial Conduct Authority (FCA). Taking a loan from a lender that isn’t approved puts you at great financial risk.
Eligibility requirements
Requirements will vary by lender, but expect to be required to meet the following criteria:
Be aged 18 or over.
Be a UK resident.
Hold a bank account.
Have an email address and mobile number.
Have some form of regular income.
What is a Continuous Payment Authority (CPA)?
A CPA is a recurring payment in which you give a company permission to withdraw money from your account on a regular basis.
CPA’s differ from direct debits because they give the company being paid the ability to withdraw money from your account whenever they wish, and to take payments of different amounts without consulting you. Most payday loan companies will use CPA to collect your repayments, however you can cancel this by either consulting with your provider or your bank.
Frequently Asked Questions
Taking out a 3 month loan will show on your credit report, but provided you keep up with repayments your credit score shouldn’t be affected. In fact, showing you can repay loans on time is generally a good sign to future lenders. It is possible, however, that future potential lenders will see a payday/short term loan in your credit history as a sign of financial difficulty or disorganisation. It’s important to only ever take out a loan if you’re certain you can meet the repayment schedule. If you default on repayments then your credit score could be severely damaged, making it harder to secure credit in the future.
It is usually possible to pay back part or all of your loan early, and doing so could save you money in interest. Check the early repayment terms of a specific product before you apply for it.
Yes it is possible to cancel your loan within a set period of time at the beginning of your loan. When you cancel your 3 month short term loan you’ll be expected to pay the full amount back immediately.
As well as proof of ID, you are likely to need to provide details on some or all of the following: employment, income and expenditure, bank account, contact info.
You will be credit checked before you’re approved for a short term loan, and it is possible that some lenders will decline your application if you have bad credit. However, short term payday loans are easier to be approved for if you have bad credit compared to personal loans with longer terms.
If your application is declined you can generally try again at any time, but the outcome is unlikely to change unless your circumstances have. Remember that seeing multiple applications for credit in a short space of time on your credit report could put off prospective lenders in the future.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more.
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