Over five million households each year apply for short-term loans, often to finance unexpected costs. With strict lending criteria applied by conventional banks, resulting in a fifth of credit applicants being turned down, it isn’t surprising that many rely on short-term lenders to access the borrowing they need.
The issue may be that consumers who require financing quickly are often under stress and might pick the first lender they see on social media or via a search engine without conducting any checks.
To help inform and educate, the direct lender Cashfloat, part of the Western Circle Group, shares key tips and advice to ensure anyone looking to borrow doesn’t end up paying more than they should or find themselves dealing with an unregulated lender.
Reasons Regulated Lending Professionals Advise Against Making Rushed Short-Term Borrowing Decisions
Facing financial distress is never a comfortable experience, but how you deal with those budgetary pressures can have long-term consequences. In an ideal world, every lender or product advertised would be credible and competitive, but sadly, this isn’t the case.
Reporting shows that credit applicants from low-income households and with low credit scores who are less able to access mainstream loans are more likely to use illegal lenders, with an estimated 3.3 million people having used unauthorised providers over the three years to 2024.
The ramifications can be serious. Consumers may pay far more than the regulated maximum interest rate, be subject to changing terms and threats to pay more, and become stuck in a debt spiral without any way to maintain repayments or ever clear the debt.
This is why all credible lenders must conduct affordability assessments, share details about the interest rates and maximum fees payable, and run credit scoring checks, all of which help determine whether an applicant can genuinely afford the short-term loan they have requested.
Around 61% of payday loan borrowers and 41% of those applying for short-term instalment loans have less confidence managing their money than others, which means the advice, support and information professional customer service teams offer may also be valuable for those in financial difficulty, something they will not receive from an unauthorised illegal lender.
Advice for Consumers Searching for Short-Term Borrowing
The best advice is to look for a loan provider that offers direct loans. While there are competitive brokers, borrowing directly is generally more affordable because borrowers won’t be paying commission fees on top of the interest rates and other administrative charges.
It is also strongly advisable that anyone considering any form of borrowing conduct a few checks. These aren’t time-intensive for borrowers seeking urgent or same-day loans and help to verify that a lender is trustworthy.
The first is to look for a Financial Conduct Authority (FCA) authorisation number, which should be displayed on websites, in correspondence, and in documentation, this is usually shown alongside contact information online.
That could be phrased as ‘authorised by the FCA’ or ‘FCA-authorised’ followed by a number. You can visit the FCA website and enter the business name, reference number, location or postcode, and you will see the results for all matching authorised lenders, and the types of regulated activities they have permission to carry out.
You’ll find important notices about fraudulent activity, such as where illegal lenders have been reported after cloning the details of the legitimate lender. The FCA website will display the correct contact details for the authorised firm, including their website, email address and phone number.
If you still have doubts, you can look for consumer reviews and testimonials through independent third-party sites like Trustpilot, where you’ll find comments from borrowers who have been caught out and have shared their experiences to prevent the same from happening to others.
Statements and Guarantees Short-Term Loan Applicants Are Advised to Be Wary Of
There are several ways that unregulated lenders try to convince borrowers to buy into their services. These are similar to the tactics used within scam emails and calls, putting the individual under pressure, usually by stressing a time limit to frighten or panic the person into proceeding.
No regulated lender will exert this sort of pressure and will provide information that the borrower can review and compare in their own time to decide whether or not they’d like to go ahead.
Genuine lenders will need to carry out the affordability and credit checks mentioned, and you’ll often find a calculator tool which will tell you exactly what your loan would cost to repay. These resources are a great way to see what the monthly instalments would be and how they change if you extend or shorten the period, and what the impact is on the overall repayment value.
Affordability calculators are also available to help borrowers with adverse credit or those who have been turned down elsewhere to see whether they are likely to be approved, avoiding a hard credit check on their report if they already know their loan may not be granted.
If you encounter a short-term loan provider without this depth of information, it is likely that they are not regulated, and at best may be in breach of the responsible lending guidelines set out by the FCA.
For example, a short-term loan that offers guaranteed approval, no credit checks, and immediate access to funds isn’t compliant with the UK’s lending regulations and might come with significant risks.
Reporting Suspected Fraudulent or Unauthorised Short-Term Lenders in the UK
Once you’ve checked that your chosen lender is regulated and have satisfied yourself that you understand the terms, costs and overall interest associated with your loan, you can apply with confidence that you’re dealing with a legitimate company, and should also be able to access calculators and pre-application checks we’ve mentioned to give you a better idea about whether your loan is likely to be approved.
In the meantime, if you come across any issues or attempts to coerce you into taking out a loan you don’t want or aren’t comfortable with, you can report this to Action Fraud online or over the phone, or to the FCA.
About Cashfloat
Cashfloat is one of the UK’s leading direct lenders. We provide online loans for people with all credit scores. Cashfloat is fully authorised and regulated by The Financial Conduct Authority.
