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Short term loans are loans which do not last that long and are usually for relatively small amounts of money. These are usually known as payday loans. This is because you only borrow the money until you next get paid and then you have to pay it back in full including the costs such as interest and fees. Many people feel that these loans, which are relatively new, are very bad, but it is worth understanding how they work before you dismiss them.

Payday loans were brought out so that those people with a poor credit record could have a way to borrow money in an emergency. They were designed to allow people to borrow a few hundreds of pounds, very quickly so that if they needed money within a few days or even a few hours they would be able to get it. Many people would be able to use a credit card or overdraft for this sort of thing, but if they have borrowed all they can or do not have them, then it can be difficult to know where else to turn to get some extra money.

Payday loans are expensive though. The companies take a risk by not doing a credit check and lending to those that they know may not be capable of paying them back. This means that they charge extra to cover the costs of chasing late payments and to cover them if they never get a repayment. However, they are upfront with the costs so you should know how much you will have to pay back. They will let you know how much the repayment is with the amount your borrowed and the cost added together so you know exactly what you owe. As long as it gets paid back on time, then you will be able to know what you will have to pay back. The problems with a short term loan happen when you cannot pay back on time. This might be because you have other expenses leaving your bank so when the payment is taken there is no money left or that your pay is delayed or something like that. The short term loan company will start adding on extra fees if the payment is not received on time and these can add up really quickly which is where things can get very difficult. Unfortunately it can become very easy for the debt to get out of hand and seem unaffordable. This is why you need to think carefully and only use a loan like this if you know that you will definitely be able to pay it back on time. It can be all too easy to borrow the money, but your first focus should be paying it back and how you plan on doing that. Also once you have paid it, will you then be able to manage until the next payday without that chunk of money. A lot of thought and planning should go into any borrowing, particularly when it is very expensive.