What to Look for When Taking Out a Short-Term Loan
Published 21st of November 2012·Updated 15 April 2026
Reviewed by: Reviewed for accuracy April 2026
When taking out a short-term loan, the most important things to check are the representative APR, the total amount repayable, any early repayment charges, and whether the lender is authorised by the Financial Conduct Authority (FCA). A loan that looks affordable at first glance can become expensive quickly if you miss these details.
Short Summary
Always check whether a lender is FCA-authorised before applying. You can search the FCA Register at register.fca.org.uk. Unregulated lenders have no obligation to treat you fairly and have been linked to predatory lending practices.
The total amount repayable is more useful than the monthly payment figure. A low monthly payment spread over a long term can mean you pay back significantly more than you borrowed.
Since 2015, FCA rules cap the cost of high-cost short-term credit (including payday loans) at 0.8 per cent per day, with a total cost cap of 100 per cent of the amount borrowed. No borrower should ever repay more than double what they took out.
Early repayment can save you money on interest. Check whether the lender charges an early repayment fee before you sign. Many regulated lenders now allow full early repayment with no penalty.
If you are considering a short-term loan because of ongoing financial pressure, a free debt adviser at StepChange or your local Citizens Advice bureau may be able to suggest alternatives that cost less.
Is the lender FCA-authorised?
Check the FCA Register before applying to any lender. Lenders must be authorised by the FCA to legally offer consumer credit in the UK. Authorisation means the lender must follow rules on affordability checks, transparent pricing, and fair treatment of customers in financial difficulty.
To check, visit register.fca.org.uk and search for the lender's name. If they do not appear, do not proceed. Using an unauthorised lender offers you no protection under the Financial Ombudsman Service if something goes wrong.
What is the true cost of the loan?
The representative APR tells you the annual cost of the loan expressed as a percentage, including interest and compulsory fees. However, for loans lasting less than a year, the total amount repayable is often more useful.
Ask the lender to confirm three figures before you agree: the amount you are borrowing, the total interest charged, and the total amount you will repay. Under the Consumer Credit Act 1974, regulated lenders must provide this information in writing before you sign.
| Loan amount | Term | Representative APR | Total repayable |
|---|---|---|---|
| £500 | 3 months | 39.9% | ~£560 |
| £500 | 3 months | 292% | ~£610 |
| £500 | 3 months | 1,294% (typical payday) | ~£625 (capped) |
Figures are illustrative. Always request your specific quote in writing.
Are there early repayment charges?
Some short-term lenders charge a fee if you repay the loan before the agreed end date. This is legal but worth checking before you sign. If you think there is any chance you will repay early, choose a lender that does not charge this fee.
Under FCA rules, lenders must tell you clearly about any early repayment charges. If a lender is vague or reluctant to confirm this, that is a warning sign. Reputable lenders including Likely Loans and Oakbrook Finance make their early repayment terms clear in their loan documentation.
How quickly will the money arrive?
Reputable short-term lenders typically transfer funds to your bank account within 24 hours of approval, often the same day. If a lender cannot tell you precisely when you will receive the money, or imposes unexplained delays, look elsewhere.
Faster payment does not mean you should skip the checks above. A quick payout from an unauthorised lender still leaves you unprotected, and some lenders use speed as a sales tactic to discourage comparison shopping.
What if I cannot repay on time?
Contact your lender as soon as you know you will struggle to make a payment. FCA-authorised lenders are required to treat customers in financial difficulty fairly. This can mean a payment freeze, reduced instalments, or a repayment plan with no additional charges.
Under FCA guidance, a lender should not roll over a payday loan more than twice. If your lender has done this, or is pressuring you to roll over, you can raise a complaint with the Financial Ombudsman Service free of charge.
Alternatives to short-term loans
Before committing to a short-term loan, consider whether one of the following would cost less:
- An authorised overdraft from your bank (typically 39.9 per cent APR, but no arrangement fee for short use)
- A credit union loan (usually 12.7 to 42.6 per cent APR; credit unions lend based on membership rather than credit score)
- A 0 per cent purchase credit card for a planned expense
- A salary advance from your employer (often interest-free)
- A Budgeting Loan from the Government (interest-free, for people on certain benefits)
FAQ
What is the maximum APR on a short-term loan in the UK?
There is no statutory cap on APR for short-term loans in general. However, for high-cost short-term credit (loans lasting 60 days or fewer), the FCA caps the daily interest rate at 0.8 per cent and the total cost at 100 per cent of the amount borrowed. This means you will never repay more than double what you borrowed.
Can I get a short-term loan with bad credit?
Yes, some lenders specialise in lending to borrowers with poor credit histories. However, you will typically pay a higher interest rate. Always compare the total cost, not just the monthly payment, and use a soft-search eligibility checker before applying so that enquiries do not affect your credit score.
What documents do I need to apply for a short-term loan?
Most FCA-authorised lenders require proof of identity (passport or driving licence), proof of address (a utility bill or bank statement), and proof of income (payslips or bank statements). Some lenders use open banking to verify income directly, removing the need to upload documents manually.
How does a short-term loan affect my credit score?
Applying for a short-term loan adds a hard search to your credit file, which can lower your score slightly. If you repay on time, the loan may improve your credit history over time. Missed payments are recorded and will damage your score for six years.
What is the difference between a payday loan and a short-term loan?
A payday loan is a type of short-term loan designed to be repaid in full on your next payday. A short-term loan typically runs for three to twelve months, with monthly instalments. Both are regulated by the FCA, but short-term instalment loans are generally less expensive and more manageable than single-repayment payday loans.