It is difficult to go through life these days without finding yourself taking out some kind of loan, at some point, for one reason or another. For some people, that loan could be for a seriously hefty sum of money, for a very major purchase – a mortgage for a home purchase being one example of this.
Significant numbers of people, however, also occasionally consider borrowing a somewhat smaller sum of money – perhaps in the hundreds or a few thousand pounds – for any of a variety of purposes, with the intention that this will be paid back over a relatively short timeframe (for example, up to 12 months).
And what could those “purposes” for taking out a short-term loan be? Well, a classic example would be if a short-term financial emergency crops up. If, for instance, the car that you commute to work in was to break down or fail to start on a morning, and it required repairs, would you be able to fund those out of money you have right now? Or would you have to consider borrowing money from somewhere? When considering short-term loans, it's essential to note that they are not suitable for long-term borrowing or if you're experiencing financial difficulties.
Then, there are those people who consider a short-term loan if they are trying to afford something like their wedding or home improvement work. They might be just a few hundred or thousand pounds short of what they need – in which case, a short-term loan could make some sense.
Here at CashCompare, we are proud of the services that we provide to borrowers in a wide range of circumstances, including those who are looking to obtain a short term loan with bad credit. But there are also a few things that you need to know about the relationship between short-term loans and credit scores, before you enquire to any lenders or brokers to borrow money.
Introducing credit scores, and why they are so important for borrowers
A credit score is, in effect, a number that represents a “score” for how well you manage your finances. And this score is something that lenders look at when they are seeking to determine how risky a prospect you would be as someone to lend to.
All three of the main consumer credit reference agencies (CRAs) in the UK – Equifax, Experian, and TransUnion – collect information about you from a variety of sources, including lenders, other service providers, and public records. The aim is to formulate a credit score that will help inform a lender’s decision on whether to approve you for a loan (and, if they do, on what terms).
So, such factors as whether you consistently repay your loans, and how close you normally are to your credit limits, will determine what scores the CRAs give you.
Having a good credit score, then, will maximise your chances of being granted the loan that you want, on the terms that you want, when you next come to apply for one.
By contrast, having bad credit could make it much more difficult for you to get approved for a loan. Or if you do get approved, the terms, such as the interest rate, could be somewhat unattractive, to reflect the risk that you are perceived to present to lenders.
So… if you get approved for a short-term loan, could this help improve your credit score?
If you have been reading this article as someone who has a poor credit score, you might be feeling downbeat right now about your chances of actually getting that short-term loan you want.
But it’s important not to feel too disheartened, as we do have some good news to share with you, too. Firstly, as a broker, we work with many lenders that have long helped to make available a short-term loan for bad-credit applicants. So, even if your credit score looks less than brilliant right now, you might still be able to obtain a loan that works for you, after applying via our online form.
The second piece of good news is that, yes, taking out a short-term loan could well help you to improve your credit score in the longer term. This will only be the case, though, if you pay back the entirety of your short-term loan, including paying all the instalments on time. Any missed repayments or failure to pay back everything you owe, will damage your credit score.
This underlines the importance of only committing to any kind of loan if you are exceedingly confident of being able to pay it back – for example, because you would be able to easily afford the repayments from your usual monthly income.
Here at CashCompare, we are all about encouraging responsible borrowing and the sensible handling of finances. After all, if you can achieve that, it will represent a “win” for both you and whatever lender you’re borrowing from. Always ensure that any loan taken out is affordable and suitable for your individual circumstances. Consider alternative forms of credit if a short-term loan doesn't align with your financial situation. It will also help strengthen your chances of getting approved for credit in future, on better terms than might be possible for you now.
Why not, then, complete and submit our straightforward online form today, to see whether borrowing through one of our represented lenders could be the right choice for you?
CashCompare acts as a credit broker and not a lender. We might receive a commission if you decide to proceed with a loan after using our platform.
"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.