Even the most organized people can find themselves in a situation where they have an unpredicted expense that they don’t have enough savings to cover. After all, there are some things that we simply can’t predict! Say you have an app or notebook to tackle all your incomings and outgoings, and everything is perfectly balanced and then… your car breaks. You need it to go to work so it’s certainly not something that can wait until your next payday! You consider your options and decide that a short term loan might be just what you’re looking for. But what kind of unsecured loan suits you best?

What are peer to peer loans?

Peer to peer loans are a type of short term unsecured loans in which the lender is not a company but another person.

Usually, both lenders and borrowers need to join an online lending platform that acts as an intermediary. The lending platform puts both interested parties in touch and facilitates the process. The borrower gains access to money, the lender receives interest on the loan amount, and the lending platform usually takes a commission. It’s important to always make sure that the lending platform is regulated and authorised by the Financial Conduct Authority (FCA) prior to making an application.

Something else to be aware of is that you might be borrowing from a few different lenders, not just one. Let us explain. Both to minimise the risk of occasional unpaid loans and because one lender might not be able to cover the full amount you need to borrow, you will often receive pooled funds from a few different lenders, and so when a repayment is collected by the platform, each lender receives a payment proportional to their investment.

It’s important to note that it’s unlikely you will get accepted by one of the major peer-to-peer lending sites if you have a bad credit history.

What are payday and instalment loans?

Payday and instalment loans are also types of unsecured short term loans, but in this case the loan company that you give your information to is usually a direct lender. Again, it’s always important to ensure that the lender is regulated and authorised by the Financial Conduct Authority (FCA) prior to making an application.

Normally, the maximum loan amount is around £1,000 and you can generally apply online. If you meet certain criteria and your application is approved, the funds are typically transferred to you on the same day that you apply. Now, the difference between these two types of loans lies in your repayment options:

  • Payday Loans

A payday loan is a small loan that you repay on a certain agreed date. As the name suggests, this date will usually be your next payday, but it can be any date within a 35 day period that suits you.

  • Multi Month Loans

On the other hand, multi month loans are a type of loan that you repay in instalments across multiple months. Normally this would imply a higher repayment amount, as you borrow the money for a longer period of time. Silver lining? This way the repayments may be more affordable as they’re spread out over a number of months.

What are direct lender loans?

Direct lenders will review your application and check your credit file to make their lending decision. If your application is approved, a direct lender will transfer the funds directly to you rather than acting as a broker. In the same way, you will make your repayments directly to the lender on the agreed repayment dates.

Are payday and instalment loans better than peer to peer loans?

Good question! And the answer will often depend on your financial circumstances and needs, as these different types of loans generally target different audiences. It’s always important to do your research before making an application for credit, but remember, no matter which loan you decide to apply for, you should always ensure that the lender is authorised and regulated by the Financial Conduct Authority (FCA).

If you’re still unsure about it, let us simplify the benefits of borrowing from a direct lender such as cashasap.co.uk:

  • If you meet our affordability criteria you can get accepted even if you have bad credit
  • Your information is shared with a limited number of parties, such as Credit Reference Agencies to review your credit file or banks to process the loan transfer
  • If your application is approved, you can usually get the funds in your account within two hours of being accepted
  • You borrow from a single lender, which may make it easier to agree to an alternative repayment option if your circumstances change

If you have decided that taking out a loan is the right option for you, it’s important to note that short term loans are considered something to help with a temporary financial shortfall, and should never be used as a long term financial solution.