What to know before borrowing online

Facing an unexpected expense? An online loan might well be the quickest way to get things sorted. Many lenders have a fast application and approval process, but taking out a short-term, payday loan of any size is a big decision.

Take the time to consider your options. Focussing on how quickly you can get a loan might mean you miss the important details. That’s why we’ve put this guide together for you. Complete with a checklist of what to know before you borrow online, you’ll ensure any loan fits your budget and future plans.

In this guide:

• Your checklist: What to sort before you apply
• Choosing a lender you can trust
• What's the long-term impact?
• Borrow with confidence

Your checklist: What to sort before you apply

There’s a few steps you can take before comparing loan lenders. The more prepared you are, the more control over the process you’ll have, as well as the confidence to borrow what you can comfortably afford.

Follow this checklist to get a clear understanding:

1. Know the real cost

When you borrow money, you pay back the amount borrowed plus any fees or interest. Moneyboat charges a fixed interest rate of 0.79% per day, and charges no fees to take out the loan or pay it back early.

Beyond that, it’s important to know how the full cost of your potential loan is worked out – and you'll mainly see two figures:

• Interest rate: The cost of borrowing the money, usually shown as a percentage.
• Annual Interest Rate: The cost of interest calculated over a full year, without considering the compounding effect or any fees.
• Annual Percentage Rate (APR): The interest rate plus any fees that the lender charges, converted into an annualised rate for comparison purposes.

Understanding the APR is important for most forms of credit but can give a skewed idea of what it will cost to take out a short-term loan. For example, a Moneyboat loan is designed to be paid back over 2 to 6 months – so the APR isn’t an accurate reflection of what you’ll pay.

Instead, look at the Total Repayable Amount – shown in the following representative example:

“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 1,267.9% APR.”

Looking at that example:

• The borrower took a £400 loan spread over 4 months
• The Total Repayable Amount is £624.34
• So the cost of borrowing for four months is £224.34 (£624.34 - £400)

Try not to worry if you don’t fully understand this in one go. It’s a complicated topic that many in the finance industry aren’t able to explain themselves! To get a deeper understanding, check out our guide on ‘What does APR mean?’.

2. Can you afford the repayments?

A question only you will know the answer to, but a critical one to answer. A loan of any amount will only help you if the repayments are manageable.

Start by looking at your current financial commitments:

• Rent / mortgage
• Utilities
• Food
• Transport

Now, factor in the proposed repayment amount and the frequency. Will meeting the new repayment schedule leave you with enough money to live comfortably for the rest of the month?

A responsible lender will carry out a thorough affordability check to ensure the loan is suitable for your circumstances, but you should always perform this check yourself first. To help you with your planning, explore our resources on how much payday loans costs and budgeting made simple.

3. How flexible is the repayment plan?

Short-term loans work in different ways, so it’s worth checking how your repayments are set up before you apply. The repayment term is simply the amount of time you have to pay everything back, and it has a big impact on how your monthly budget will feel.

Some loans still expect you to repay the full amount, plus interest, in one go on your next payday. That can be a lot to take on and may leave you short the following month.

Other lenders offer instalment loans, which let you spread the cost over a number of weeks or months. This approach tends to feel more manageable because it eases the pressure on your day-to-day spending.

It’s also worth checking whether the lender charges a fee for paying the loan off early. Many do not, and clearing a balance sooner can reduce the amount of interest you pay.

For example, a Moneyboat loan gives you both the flexibility of repaying in instalments as well as being able to pay it back in full early at no extra cost.

Choosing a lender you can trust

Once you know what you need from a loan, it’s important to understand who you’re dealing with.

1. Direct Lender vs. Broker

When you search online, you’ll usually find two types of companies offering short-term borrowing:

• Broker:  Collects your details and passes them on to other companies that may be able to lend to you. They don’t provide the loan themselves.
• Direct lender: Handles everything from start to finish. They look after your application, issue the loan if approved, and manage all of your repayments.

Working with a direct lender means your information stays in one place, and you only speak to the company that’s actually providing the credit. This keeps communication simple if you have questions about your loan.

2. Regulatory Compliance

Any lender in the UK must be authorised and regulated by the Financial Conduct Authority (FCA). This protects customers by making sure lenders follow strict rules around fair treatment, clear information and responsible lending.

You can confirm a company’s registration by checking the FCA’s Financial Services Register. If a lender can’t show their authorisation, don’t continue with the application. We go into more detail on this in our guide on if you can trust a payday lender.

3. What transparency looks like

A reliable lender makes everything easy to understand. You should expect:

• No hidden costs: The full amount you’ll repay is shown upfront before you sign anything.
• Clear, simple documents: Agreements written in plain English, with no confusing clauses.
• Straightforward support: A UK-based team ready to answer questions about your loan or repayments.

What's the long-term impact?

Taking out a loan affects more than the here and now. It can shape your credit history and how future lenders see you, especially when it comes to bigger financial steps.

1. Your credit history

Each payment you make is recorded by credit reference agencies.

• Paying on time can help show that you manage borrowing well.
• Missing or late payments can stay on your credit file for up to six years and may make it harder to borrow in the future.

2. Bigger financial decisions

People often wonder how short-term borrowing might affect major plans, such as applying for a mortgage. Mortgage lenders look closely at your full credit history, including how often you’ve used short-term credit.

Our guide on how payday loans affect my mortgage applications explains this in more detail.

3. Knowing when to pause

Short-term loans are designed for unexpected, one-off situations. They’re not a long-term fix, and they shouldn’t be used to cover regular living costs. If you find yourself borrowing again and again, or if debt is starting to feel overwhelming, it’s time to speak to someone who can offer free, impartial guidance.

Borrow with confidence

Borrowing money is an important decision, but taking your time to understand the basics can help you make a choice that feels right for you. Keep these points in mind:

• Check the Total Repayable Amount before agreeing to anything.
• Be honest about what you can afford.
• Make sure the lender is FCA-authorised and open about all charges.

Free, impartial financial support

If you’re finding things difficult or feeling unsure about your next steps, you don’t have to work through it alone. We’ve put together this list of organisations who offer free, confidential help – including:

• StepChange: A charity offering tailored debt advice and budgeting support.
• Citizens Advice: A charity offering debt advice and budgeting support.
• MoneyHelper: Government-backed support with money and debt.

National Debtline: Free help with debt, housing, and other concerns.