What You Need to Know About Short Term Loans

Short-term loans can be very helpful when you need to borrow a small amount quickly but be careful. Many have excessive fees and very short repayment periods. This is especially true for short-term cash loans without a credit check.

If you’re facing a shortage of cash and need to borrow money and pay it back later, know that you have options. Consider the short-term personal loans below, but approach with caution and have a repayment plan in place before you borrow.

What is a short-term personal loan?

There is no universal definition of a short-term personal loan or temporary loan. Most short-term loans that we’ll cover have a repayment period of twelve months or less. They are typically unsecured personal loans for small amounts of money, under $2,000. They are designed to provide quick financial relief, often with minimal requirements and a fast application process. You will likely be required to show proof of employment with sufficient income, a government-issued ID, and have a bank account or savings account. Most do not require collateral and a few do not conduct a credit check. You can usually receive your money in one lump sum within 24 hours.

They sound great when you’re in a pinch for cash, but are not without their drawbacks. Most lenders charge higher interest rates and additional fees. The annual percentage rates (APRs) can reach the triple digits. The added costs is to compensate the lenders for the risk they take lending money to borrowers with poor credit scores. The short repayment period of a few weeks to only twelve months makes them very difficult to pay back.

Before you take out a short-term cash loan, look at all your options. Be sure that you can afford to repay the funds as agreed, or else the loan will hurt you more than help you.

What to consider with short-term loans for bad credit?

When considering borrowing money, take a look at:

• Loan terms
• Loan amounts
• Interest rate
• Additional fees – late fees, prepayment penalty, origination fee
• Total cost
• Repayment term

Bad credit loans can be useful when you need cash fast and have poor credit or no credit history at all.

Cover emergency expenses

If you think, “I need a short-term loan,” it’s often because an unexpected expense has arisen. Unlike traditional personal loans, which can take days or weeks to process, short-term loans are often approved and funded within 24 hours. The fast timeframe makes them very tempting when facing a financial emergency.

Applying for a short-term loan online can further expedite the process. Many online lenders have more lenient requirements and will approve bad credit borrowers. Look for an online lender who offers quick approval and same day funding.

Online loan marketplaces can be very helpful. The online lending platform connects borrowers to partner lenders who work with their credit profile. Borrowers complete one application and can prequalify for multiple offers without hurting their rating.

Get approved with bad credit

A lot of short-term lenders do not put much emphasis on your credit score, making them a viable option for borrowers with bad credit. Most traditional personal loan lenders require a FICO score of 670 or higher, putting personal loans out of reach for those with poor or fair credit scores. Short-term loans generally have low or no minimum credit score requirement, focusing instead on your current income and ability to repay the money.

If your lender reports your monthly payments to the three major credit bureaus, then the short-term personal loan can help you build credit and establish a positive payment history. All you have to do is make on time payments.

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Defining characteristics of short-term loans

The key characteristics of a short-term cash loan are:

• Brief repayment period of a few weeks to twelve months
• Minimal requirements
• Easy approval
• Fast funding
• High interest rates and fees

Most short-term loan lenders do not have a minimum credit score requirement and many do not conduct a credit check. On one hand, this makes them attractive to borrowers with lower scores. On the other hand, the short repayment terms and high APRs make them less desirable.

Short-term borrowing options

There are several short-term loan options, each with different characteristics, fee structures, and repayment terms. Here’s a detailed look at some of the most common quick short-term loans and what you should know about each.

Credit card cash advances

A credit card cash advance allows you to withdraw cash from an ATM using your credit card. The amount you can withdraw is based on your available credit limit. While it’s a convenient and fast option, as it bypasses the typical loan application process, it’s also a costly one. Your card issuer will typically charge a cash advance fee of 3% to 5% of the amount withdrawn, and the ATM will likely impose an additional fee. Moreover, interest on cash advances begins accruing immediately at a higher APR than for regular purchases, with no grace period. This means that the cost of borrowing can quickly escalate, making it an expensive short-term solution. Therefore, it’s advisable to take out a credit card cash advance only if you can repay the amount immediately to minimize the interest charges and fees. Careful consideration and planning are crucial to avoid falling into a cycle of debt due to the high costs associated with cash advances.

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Payday loans

A short-term payday loan is typically due on your next payday. It is accessible even to those with poor credit, as no minimum credit score is required. Payday lenders do not even conduct a hard inquiry; instead, they rely on your next paycheck. These loans are for small amounts, usually under $500.

A payday loan is often marketed as a guaranteed short-term loan since they’re so easy to get. However, payday loans are notorious for their extremely high interest rates and fees – a 400% APR is not uncommon. When considering ‘Which will charge the highest interest rate on a short-term loan?” payday loans are often at the top of the list. They can trap borrowers in a cycle of debt due to their short repayment periods and high costs. It’s crucial to fully understand the various loan terms, before taking out a payday loan to avoid financial pitfalls.

Pawnshop loans

Pawnshop loans require you to use a valuable item, such as jewelry, electronics, or other personal valuables, as collateral. The pawnshop will appraise the item and offer you a cash loan based on its estimated value, typically a fraction of its retail worth. If you repay the loan plus interest within the agreed-upon time frame, usually 30 to 90 days, you retrieve your item. If you fail to repay, the pawnshop keeps and sells the item to recoup their money.

These secured loans do not require a credit check, making them accessible to individuals with poor or no credit history, and they provide a quick way to obtain cash. However, the interest rates and fees associated with pawnshop loans can be exceptionally high, often making them an expensive borrowing option. Additionally, there is a significant risk of losing your asset if you cannot repay the loan on time. This risk, coupled with the high cost of borrowing, makes it crucial to consider other options and ensure you can meet the repayment terms before proceeding with a pawnshop loan.

12 month payday loans: Payday alternative loans

Payday Alternative Loans (PALs) are small-dollar loans offered by certain federal credit unions as a safer and more affordable option to traditional payday loans. These loans typically range from $200 to $1,000 and come with lower interest rates and longer repayment terms, making them more financially manageable. The repayment terms for PALs range from one to twelve months, and the interest rate is capped at 28% APR, significantly lower than the rates associated with payday loans. For those needing longer repayment periods, 12-month loans provide a practical and manageable solution.

To qualify for a PAL, you must be a member of the credit union for at least one month. These loans are designed to address emergency expenses without the high costs and risks linked to other short-term borrowing options. By offering lower costs, regulated interest rates, and flexible repayment terms, PALs help borrowers avoid the debt traps often associated with payday loans, promoting financial stability and responsible borrowing practices.

90 day loan notes

A 90-day loan note is a type of personal loan from a bank that the borrower agrees to repay within 90 days. These notes often come with fixed interest rates and typically require a good credit history for approval. They are commonly used for immediate financial needs or to bridge cash flow gaps. As with many other short-term borrowing options, the APR charged is higher than for long-term loans. For example, a 14% APR is common for 90-day loan notes, which is still lower than other temporary loan options. The higher APR ensures that the bank can still profit from the loan despite its short duration.

The structured repayment schedule of 90-day loan notes provides clear expectations for borrowers, making it easier to plan and manage finances. Additionally, the reliability and trustworthiness of banks as lenders add a layer of security and confidence for borrowers. This makes a 90-day bank loan a manageable and viable option for those in need of short-term financing, offering a balance between quick access to funds and a structured repayment plan.

Car title loans

Car title loans are another type of short-term secured loan often used by individuals with bad credit. Your vehicle’s title serves as collateral but you still get to drive your car.The lender holds the title and provides you with a loan amounting to 25% to 50% of the vehicle’s market value.

The major drawback of car title loans is they have to be paid in full plus interest within 15 to 30 days. Most lenders charge exceptionally high interest and fees, often equaling a 300% APR. If you cannot repay the full loan amount, including interest and fees, by the due date, the lender has the right to repossess your car. This high-risk factor, coupled with the potential loss of a valuable asset, makes car title loans a precarious option for borrowing. They should be considered only when absolutely necessary and when you are confident in your ability to repay the loan promptly.

Cash advance apps

Typically, how it works is you link the app to your checking account, where you receive direct deposit. The app advances money based on your earnings. The loan amount varies from $50 to $500. Most apps do not conduct a credit check nor do they charge interest, making them a cheaper option. The advance will be automatically deducted from your next direct deposit.

Cash advance apps do generally charge either a subscription fee or ask for a tip, and there’s usually a fast funding fee if you need cash instantly. While they are a less expensive option, it’s essential to manage your cash flow carefully to avoid relying on these advances. Overuse can lead to financial strain, even without a high interest rate.

How to compare short-term loans online

To compare short-term loans online, start by identifying reputable lenders through reviews and ratings. Many lenders let you prequalify making it easier to compare potential loan offers. When comparing options, consider the loan features:

Loan term: This is how long you have to repay the money. Some lenders have terms as short as 14 days, while others go up to twelve months. A shorter repayment period makes the loan harder to pay back.

Annual percentage rate (APR): The APR consists of both the interest rate and fees. Ideally you want a loan with a low APR.

Potential penalties: Take a look at other possible fees the lender may charge, such as origination fees, administrative fees, late payment fees, and prepayment penalties. An origination fee is automatically deducted from the loan proceeds. It is typically 1% to 12% of the total loan amount. A prepayment penalty is only charged if you pay off the loan early. Be sure you understand all the charges and how to avoid the ones you can.

Loan amounts: Be sure to select a lender who will give you the cash you need. Personal loan amounts vary widely from $100 to $2,000 or more. While it can be tempting to take out a larger amount, only borrow what you actually need.

Funding time: How long it takes to get your money is critical in an emergency. Look for an online lender that specializes in first-day loans. These lenders ensure your application is processed promptly and funds are in your account on the same day.

Lender reputation: Read customer reviews and check sites like the Better Business Bureau and TrustPilot to get an idea of how reliable the lender is. Ideally, you will find a lender with positive reviews and good customer support.

Look for a loan that has competitive interest rates and one where you can afford the monthly payments. You can use a personal loan calculator to figure out the monthly payments and make sure they fit your budget.

Easily apply for a short-term loan

When you have an idea of type of personal loan you want and are ready to apply, follow these steps:

1. Check your credit score: While the majority of short-term lenders do not conduct a hard inquiry, it’s still a good idea to know your credit score.
2. Research lenders: Find legitimate personal loan lenders with positive reviews who offer fast funding in the amount you want.
3. Prequalify and compare offers: Most lenders let you prequalify. Try to prequalify with at least three lenders and compare potential loan offers.
4. Formally apply for the best loan: Once you’ve found the loan with the best terms for you, submit a formal application. you will likely have to provide documentation including proof of income – pay stubs or past taxes, government issued identification, and other financial records.
5. Read the loan agreement: Always read the fine print and understand the loan terms before you agree to it. Make sure you can afford the fees and that the interest rate isn’t too high.
6. Sign and receive your funds: Once you’ve read the loan agreement, sign it. The lender should deposit the money in your bank account within one to three business days.

Most lenders ensure that the application process is simple and loan approval fast.

Reasons to avoid short-term borrowing

While short-term personal loans can offer quick access to cash in an emergency, there are significant reasons to be cautious.

High interest rates and fees

Short-term loan companies often charge notoriously high interest rates and fees. Many of their APRs are in the triple digits, making them much more expensive than a traditional personal loan. For instance, payday lenders typically charge a fee of $10 or $30 for every $100 borrowed. If you borrow $500, you have to pay back $650 within 14 days.

Many lenders offer loans with tacked on fees. Origination fees are typically taken out upfront and can cost anywhere from 1% to 12% of the total loan amount.

Comparing short-term vs long-term loan options reveals that long-term loans generally have a much lower interest rate. Interest rates on installment loans range from only 8% to 30%.

Hurt your credit score

Loans with short repayment terms are difficult to repay on time. If you fail to repay, your credit score can suffer. Depending on the type of loan, the lender may report a missed or late payment to the credit bureaus, causing your credit score to drop. They could also sell your account to a collection agency. Having an account in default will drag your score down and stay on your credit report for up to seven years.

A lower credit score can affect your ability to obtain future credit, secure favorable interest rates, or even get approved for certain jobs or rental agreements.

Fall into a cycle of debt

A lot of borrowers are unable to repay the money within the allotted time frame and find themselves taking out a new loan to cover the old one. The Consumer Financial Protection Bureau (CFPB) found that four out of five payday loans are rolled over or renewed within 14 days of the initial loan. The big issue here is that the fees add up fast. Taking out new loans or rolling over old ones leads to a cycle of debt that can quickly spiral out of control.

Alternative options for fast cash

While short-term personal loans can provide quick cash, they come with high costs and risks. Fortunately, there are several alternatives to consider without the high interest rates and fees.

Buy now, pay later apps

Another option to consider is buy now, pay later (BNPL) apps such as Afterpay, Perpay, and Sezzle. These services allow you to make purchases and pay for them in installments over time, often without interest (if you adhere to the payment schedule.) BNPL apps make it easy to manage larger expenses without needing to buy a short-term loan. Always read the terms and conditions carefully, as missed payments can result in fees and impact your credit score.

Payroll advances

Ask your employer if they offer payroll advances. A paycheck advance lets you access a portion of your earnings before payday. Your employer is not allowed to profit off an advance so there are no interest charges and little to no fees. They may charge a fee to cover the extra accounting services. They are basically payday loans with a low APR that are sent via direct deposit. The lower charges make this a more affordable option. If your employer does not offer this service, there are also third-party apps that facilitate paycheck advances.

Credit cards

Using a credit card can be a more manageable, cheaper, and flexible alternative. While credit cards do charge interest, the rates are significantly lower than what most short-term lenders charge. Additionally, most credit cards offer a grace period during which you can pay off the balance without incurring interest. This can be particularly beneficial if you need short-term financing and are confident you can repay the amount quickly. While safer than payday loans, credit cards aren’t without their dangers and should be used responsibly.

Friends and family

If you’re in a financial bind, asking friends or family for a personal loan can be a viable alternative. This option often comes with no interest or much lower interest rates compared to commercial personal loans. If you go this route, it’s important to put everything in writing and state exactly how and when the money will be repaid. Clear terms can help to avoid any strains in your relationship.

Lines of credit

A personal line of credit is another alternative to consider. Unlike a personal loan, a line of credit provides you with access to a set amount of money that you can draw from as needed. You only pay interest on the amount you borrow, and once you repay it, those funds become available again. This can provide more flexibility than a lump-sum loan and typically comes with a lower interest rate. Banks and credit unions often offer personal lines of credit, as do some bad credit lenders. It’s worth checking with your financial institution to see if it’s an option.

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Bottom line

A short-term cash loan can be convenient and get you out of a financial bind, but it comes with risks. Most personal loans with short repayment periods have sky-high interest rates and tacked on fees that traditional personal loans lack. The high costs and brief repayment window make them risky and lead to a cycle of borrowing.

Before choosing this borrowing option, research alternatives and look for reputable lenders. Understand the loan terms and fees, and make sure you can afford to repay the money as agreed.