What is the difference between short term loans and credit cards?

Credit cards are generally used differently than short term loans. Short term loans are specifically designed to cover a one-off emergency expense. Borrowers tend to take out a short term loan for a specific purpose, such as to cover a dental bill, or pay for their car to get fixed so they can drive to work. They then repay the loan in full over a short period of time, up to around 6 months.

Credit cards work differently. When you have a credit card you may use it to make large purchases and spread the cost over a number of months. Or you may use your credit card to cover everyday expenses, repaying in full each month. It’s up to you how you choose to spend on your credit card, but you will be charged interest on your balance each month, so charges can quickly build up if you’re not clearing your debt each month.

Credit card interest rates vary hugely depending on your provider and your credit rating. You need a good credit rating to be approved for a credit card, while short-term loan providers can be more flexible. For example we’ll look at your credit rating alongside your income and outgoings to make our lending decisions. Credit card providers are often large financial institutions with little flexibility in their lending criteria

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Representative Example: Borrow £400 for 4 months: 3 monthly repayments of £156.09 followed by a final repayment of £156.07. Total repayment £624.34. Interest rate p.a. (fixed) 288.35%. Representative APR 1,267.9%. 

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