Short Term Loans

Getting your hands on cash for a short time, such as a pre-bonus loan or ‘tide-over' money during a house sale is usually neither easy nor cheap. Banks thrive on locking us into loans for years. Yet a few canny techniques and tricks leave you in the money, at low cost.

• Choose the right technique
• Picking the Right Card
• Buy it at 0%
• 0% overdrafts
• Flexible Loans
• Turn 0% cards into cash
• Related Articles / Discuss

Don't get locked into long, dear loans

Other Loan Articles:
Cheap Loans (especially if borrowing for longer than a year), Cut Existing Loans, Plastic Loans, Cheap Loan Insurance, Reclaim Loan Insurance

Choosing the right technique for you

The financial services industry likes to box us into categories. Yet play by their rules and you pay by their rules. Getting a loan isn't necessarily the cheapest way to…. well… er… get a loan! Loans are usually inflexible products, lasting years not months, with penalties for early repayment.

Instead ask ‘what's the cheapest form of borrowing over the period?' then take whatever form that is and manipulate it into flexible cash. Confused? Don't worry, the whole point of this article is to show you how.

Three questions to ask yourself

• How much do you need? Do you really need to borrow? If you do, honestly appraise how much and try and keep it to a minimum.
• Do you actually need it in cash? Or are you buying something specific that could be paid for on plastic. Sometimes you'll need to check to find out, e.g. some car dealers will allow you to pay on plastic, others won't.
• How long to borrow for? What's realistic? This technique is primarily for borrowing for less than a year, though it can be stretched. Truthfully establish how long you'll need the cash for; will you really be able to pay it back in six months?

Deciding on the correct route

There are three main methods of securing cheap, short-term cash. The questions below will guide you to the correct route.

. Can you make purchases on a credit card?

Yes

No

Jump to the "Simply Buy It At 0%" section

Back

Reset

. Are you overdraft free and looking for less than £1,000?

Yes

No

Back

Reset

. Are you financially savvy, on the ball and willing to play the system?
(Please err on the side of caution)

Yes

No

Back

Reset

Jump to the "Switch to a 0% overdraft current account" section

Back

Reset

Jump to the "Get a flexible loan" section

Back

Reset

Jump to the "Card Trick Method" section

Back

Reset

Simply buy it at 0%

Get a credit card with an introductory 0% rate for ‘purchases' and buy what you need on it:-

• Who's it for? Those with a decent credit history whose's spending can be done on a credit card
• Cost? 0%
• Maximum Length of Borrowing? 12 months (can be extended if you play)
• How much can you borrow? Up to £20,000, depending on credit history

How to do it

Apply for a new credit card which offers 0% interest on new purchases (do ensure it's on purchases not just balance transfers). You can get up to 12 months at 0% (read the ‘Best Lend for Spend' article).

Assuming you're accepted, you'll be given a credit limit (the maximum amount you can borrow) depending on your credit history and income. If this isn't high enough there's nothing stopping you applying for another card elsewhere and using them in conjunction – though don't apply for lots as that will damage your credit score (see Your Credit Rating article).

Now simply make the purchase(s) on the card, and make the repayments within the 0% period. You need to pay at least the card's fixed minimum repayment each month (usually around 3% of the outstanding balance), yet to clear the card over the 0% period you need to repay more than that.

If there's a problem and you can't repay in time, then shift your debt to a cheap balance transfer offer before the end of the 0% period (for a full explanation see Best Balance Transfers) otherwise the rate will shoot up to 15% - 20%.

Use a 0% overdraft

Shift to a bank account with an introductory 0% overdraft and use that:-

• Who's it for? Those who rarely use their overdraft, earn over £6,300 and are looking to borrow less than £1,000
• Cost? 0%
• Maximum Length of Borrowing? 12 months
• How much can you borrow? Up to £1,500 depending on credit history

How to do it

Alliance & Leicester* offers new current account customers a 0% overdraft for the first year. Of course, if you already have an overdraft you can't use it for new borrowing (though it will cut the cost as you can shift it). Simply set up the account and use the money for whatever you need. For full details read the Best Current Account article.

Flexible Loans

Flexible loans allow you to borrow money like a normal loan, but repay more quickly and without penalties:-

• Who's it for? Anyone who needs a larger cash loan, and wants a simple route
• Cost: 5-12% but only for the length of the borrowing
• Maximum Length of Borrowing? 12 months (any longer and you should consider a standard loan)
• How much can you borrow? Up to £25,000 depending on credit history

How to do it

The vast majority of loans available are designed with structured repayments over a fixed period. Pay them off early and you will be charged a penalty. Yet a few firms offer more flexible loans, which you can repay in full whenever you like, without facing any punitive fees. The following are the top players (see Cheapest Personal Loan article for more info).

• Top credit scorers earning over £12,000. Zopa* is a unique internet brokerage which unites people who want to lend with those who want to borrow. You're given a credit score, and are allowed to borrow if you get its top ranking.

  Loan rates vary daily and are determined by the amount needed and length of borrowing. For A* or A grade credit scorers, wanting cash over a short period, it can beat most loan rates. Take a quick trip to Zopa's calculator to get a rough quote and compare it to the best of the rest. At the time of writing, an A* borrower could borrow £1,500 at a low rate of 7.77%.

• Best of the rest

  Egg's flexible loan is available pretty widely – and most people will get a decent short term rate; 7.9% for those borrowing over £5,000, or 14.9% for those borrowing less. While this isn't dirt-cheap, as you're only borrowing over a short term, even at this rate the interest shouldn't stack up too heavily.

  For example borrow £5,000 over 10 months, making equal monthly repayments and it'd cost £180. However, its repayment protection is expensive, and it's unlikely to be necessary for a short term loan, so get a quote without. For more details, read Loan Insurance article.

When you want to pay back, simply contact either Zopa or Egg, and ask to repay the loan, in full with funds from your current account.

An alternative to the above is to consider joining a Credit Union where short term loans are usually availble. Read my full Credit Union guide for full details.

Credit Card 0%: Card Trick

Using a special credit card which allows you to move money into a bank as a ‘mule' card. Move 0% debt from other cards to it, then put it into your bank account and use it as cash:-

• Who's it for? Those who want the loan in cash form, and are prepared and able to play with fairly sophisticated credit card techniques
• Cost? 0%
• Maximum Length of Borrowing? 12 months
• How much can you borrow? Up to £10,000 depending on credit history

How to do it

This needs to be done carefully, read this through at least twice to be sure you understand it. The technique is very powerful, but easy to mess up. You first need to understand how balance transfers work. If you don't please read Best Balance Transfers first (do not try this by simply ‘withdrawing cash' and putting it in your bank account; you'd incur fees and massive interest charges).

The cornerstone is the Egg Money credit card. You'll need to already own one of these cards, as it currently isn't accepting new customers. Don't get this confused with the normal Egg credit card, it's a totally different product.

This is a hybrid credit card as it has some of the functions of a current account, allowing you to have a positive balance, as well as easy money transfers to other bank accounts. This feature enables it to be used as a ‘mule', for shifting cash from a 0% credit card deal into your normal, everyday account.

Therefore to do this you will need both the Egg Money card and a credit card with a decent 0% offer for balance transfers (see Best Balance Transfers article).

How does it work?

You get a 0% card for balance transfers and use this to pay off' the Egg Money card. This means the Egg Money card now has a positive balance and this money can then be moved into your bank account. Therefore you now have cash in your bank account equal to the amount of 0% debt on the balance transfer card.

Got that? Probably not, so follow the guide below…

EXAMPLE OF HOW TO DO THIS

STEP 1: 0% Card Egg Money
Initial Scenario Cash wanted: £3,000 Savings account: £0 Egg Money: £0 0% balance transfer card: £0	Ask your 0% balance transfer card to do a £3,000 balance transfer from Egg Money. In practical terms this means it will pay £3,000 off the Egg Money card, even though no debt there exists * *This shouldn't normally be a problem, as most credit cards' terms don't specify a debt must exist to do a balance transfer, however if specifically asked then don't lie, as that'd be fraud.
STEP 2: Egg Money Current Account
Current Scenario Loan needed: £3,000 Bank account: £0 Egg Money: £3,000 in credit 0% balance transfer card: £3,000 in debt	Now we need to get the money from Egg Money into your bank account. This is simple as Egg Money has a direct facility to do it. Go to the balance transfer section of its website, and then select it to do a balance transfer to your bank account. In other words it now pays the three grand into your bank account at no charge (because you're in credit).
STEP 3: Current Account Loan
Final Scenario Loan needed: £3,000 Bank account: £3,000 Egg Money: £0 0% balance transfer card: £3,000 in debt	You now have £3,000 in your bank account for the loan and £3,000 on your life of balance card at 0%. In other words you now have a 0% loan. You need to pay at least the card's fixed minimum repayment each month (usually 3% of the outstanding balance), yet to clear the card over the 0% period you need to repay more than that.

What happens when the 0% period ends?

Hopefully you have already repaid the debt, after all that is the point of this technique. If you've been unable to, you need to move the debt onto a card which offers cheap balance transfers, to avoid paying expensive interest – you need to do this in the month before the 0% period ends (see Best Balance Transfers article).