Guides

What Is a Short Term Loan in the UK?

Updated March 2026 · 6 min read

A short term loan is a short-term, unsecured loan designed to bridge a financial gap until your next payday. Typically ranging from £50 to £5,000, they are one of the most regulated credit products in the UK — but also among the most expensive.

How Short Term Loans Work in the UK

You apply online, usually taking 5–10 minutes. The lender performs identity and affordability checks, and most provide an instant decision. If approved, the money is transferred directly to your bank account — often within minutes via Faster Payments.

Repayment is typically via a Continuous Payment Authority (CPA), which allows the lender to attempt to collect the repayment directly from your debit card on the agreed date. You must give explicit consent for a CPA and can cancel it at any time through your bank.

The loan term is usually 1–35 days, although many lenders now offer “short-term instalment loans” repayable over 3–12 months to make repayments more manageable.

FCA Regulations and the Price Cap

The UK short term loan market is among the most tightly regulated in the world. The Financial Conduct Authority (FCA) introduced a price cap in January 2015 that remains in force:

  • 0.8% per day cap on interest and fees
  • £15 cap on default fees
  • 100% total cost cap — you will never repay more than double what you borrowed
  • Lenders must perform robust affordability checks before approving any loan
  • Rollovers (extending the loan) are limited to two

All legitimate short term lenders operating in the UK must be authorised and regulated by the FCA. You can verify any lender on the FCA Register at register.fca.org.uk.

The True Cost of a Short Term Loan

APR (Annual Percentage Rate) on short term loans can look alarming — often 1,000% or more. However, APR is designed for annual credit products and can be misleading for a 30-day loan. A more meaningful measure is the total cost in pounds.

Example:

Borrowing £300 for 30 days at 0.8%/day = £7.20 per day × 30 = £216 in interest. Total repayable: £516. That’s the maximum permitted under the FCA cap.

In practice, competitive lenders charge significantly less than the cap. Always compare the total repayable amount, not just the APR.

Who Short Term Loans Are (and Aren’t) For

Short term loans can make sense for a small, unexpected bill when you are certain you can repay on time and have no cheaper alternative available. Common use cases:

  • Emergency car repair needed to keep a job
  • Unexpected utility bill before payday
  • Avoiding a bank overdraft with very high charges

Short term loans are not appropriate for ongoing financial shortfalls, consolidating existing debt, or if you are not confident you can repay on time. If you are regularly relying on short term loans, free debt advice from StepChange (stepchange.org) or Citizens Advice is strongly recommended.

Cheaper Alternatives to Short Term Loans

Before applying, consider whether any of these alternatives may cost less:

  • Authorised overdraft — if your bank offers one, the APR is usually lower
  • Credit union loans — not-for-profit lenders, often lower rates
  • 0% credit card — if you have good enough credit
  • Personal loan — for larger amounts over longer terms
  • Employer salary advance — many employers offer this free of charge
  • Government budgeting loan — interest-free if you receive certain benefits

How to Apply Safely

If you decide a short term loan is right for you, follow these steps to stay safe:

  1. Check the lender is on the FCA Register before applying
  2. Use a comparison site like Nudge Loans to see multiple lenders at once
  3. Read the representative APR and total repayable — not just the headline rate
  4. Only borrow what you can comfortably repay on your next payday
  5. Set a calendar reminder for your repayment date
  6. If you can’t repay, contact your lender immediately — they are required to help

Frequently Asked Questions

How much can I borrow with a short term loan?

UK short term lenders typically offer between £50 and £5,000. The FCA price cap means costs are limited to 0.8% per day of the principal. First-time borrowers are often offered smaller amounts.

Can I get a short term loan with bad credit?

Yes. Many FCA-authorised short term lenders conduct affordability checks rather than relying solely on credit scores. However, a very poor credit history will reduce your chances of approval.

How quickly will I receive the money?

Most short term lenders can transfer funds within minutes of approval, provided your bank accepts Faster Payments. Apply before midday on a weekday for the best chance of same-day funds.

What happens if I can't repay on time?

Contact your lender immediately. FCA rules require lenders to treat customers in difficulty fairly. They must offer a repayment plan. You can also seek free debt advice from StepChange or Citizens Advice.

Is there a cost cap on short term loans?

Yes. Since 2015, the FCA caps the total cost at 100% of the loan value, meaning you will never repay more than double what you borrowed, including interest, fees and charges.

Will a short term loan affect my credit score?

Most lenders perform a hard credit check when you apply, which can lower your score temporarily. Repaying on time can improve your credit history. Defaulting will harm your score.