Short-term loans typically carry high APRs. Borrowing even a small amount for a few weeks can be expensive in cash terms. If you cannot repay on time, costs can escalate quickly. Use short-term credit only as a last resort for genuine emergencies.
Quick answer
Short-term loans are small, fast loans intended to bridge a gap until your next income. The FCA caps the interest and fees lenders can charge, but costs are still high relative to longer-term credit. They should only be used for genuine, time-limited emergencies where cheaper credit is not available - not as a regular borrowing method.
The FCA Price Cap
Following a major review, the Financial Conduct Authority introduced rules in 2015 that cap charges on high-cost short-term credit (HCSTC):
- Interest and fees cannot exceed 0.8% of the outstanding principal per day
- Default fees are capped at £15
- The total cost (including all charges) can never exceed 100% of the original loan - you will never repay more than double what you borrowed
These rules apply to loans with an APR above 100% and a term of 12 months or less.
Types of Short-Term Loan
Payday loans
Originally designed to be repaid when you next receive your salary. Typically small amounts (£100 to £1,000). Most now operate as instalment products rather than single-repayment loans.
Short-term instalment loans
Repaid over 3 to 12 monthly instalments. Larger amounts potentially available. Interest still significantly higher than mainstream personal loans.
Who Short-Term Loans Are Designed For
These products are designed for people who need a small amount of money quickly to cover a genuine, unexpected, short-term shortfall and who are confident they can repay on schedule. They are not suitable for covering regular living costs or ongoing financial difficulty.
If You Are Already Struggling
If you are experiencing financial difficulty, a new short-term loan is unlikely to help and may make your situation worse. Contact StepChange or MoneyHelper for free, confidential debt advice before borrowing.
Frequently Asked Questions
Short-term loans typically run from one week to 12 months, with loan amounts often between £100 and £5,000. They include payday-style loans (repaid on your next payday), instalment loans (repaid in several monthly payments), and some specialist products. Since FCA regulation tightened after 2014, the payday loan market has changed significantly and many lenders exited.
Under FCA rules, payday and short-term high-cost credit cannot charge more than 0.8% interest per day. Total charges (interest plus fees) cannot exceed 100% of the original loan amount - so you can never repay more than double what you borrowed. Default fees are capped at £15. Always compare the total amount repayable, not just the monthly payment or APR headline.
Most short-term lenders accept applications from borrowers with poor credit and thin credit files. However, FCA rules require lenders to carry out affordability checks. If a lender can see you cannot genuinely afford to repay on time, they should not approve the loan. If you are struggling with existing debts, a short-term loan is rarely the right answer.
Rolling over (extending) a loan means you continue to accrue interest. Under FCA rules, a loan can only be rolled over twice. Despite this cap, a single rollover doubles the period of the borrowing and significantly increases total cost. If you are considering a rollover, it is a sign you could not genuinely afford the original loan.
Yes. Consider: an authorised overdraft (often cheaper than a short-term loan for small amounts over a few days); a credit union loan; a salary advance if your employer offers one; or emergency grants and charitable funds if the need is for essential costs. MoneyHelper has a tool to help find local financial support.
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