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Most Americans don’t have enough savings to deal with even a minor financial emergency. About 45% of Americans have no emergency savings, while 24% have less than $1,000 saved, according to a 2019 survey by GOBankingRates.
Saving can be difficult. While everyone should try to build emergency savings, disaster can strike at the worst time, leaving you with a bill you can’t cover. Some people turn to short-term loans, which allows you to borrow money for a short period to help pay for small expenses.
The danger of short-term loans is that some lenders use predatory lending tactics that can trap you in a cycle of debt. That’s why it’s essential to check the fine print when looking for a short-term loan. This guide will help you find the best short-term personal loans and avoid predatory lenders.
On this page:
- What is a short-term loan?
- Where to find the best short-term loans
- Other types of short-term loans
- Short-term loan interest rate: What to look for
- Pros and cons of short-term loans
- How to get a short-term loan
What is a short-term loan?
There isn’t a universal standard for what constitutes a short-term loan. Each lender has its idea of what qualifies as short-term. In general, short-term loans have low borrowing amounts, with repayment terms measured in weeks or months rather than years.
Many personal lenders won’t let you borrow less than a few thousand dollars at a time. But a short-term lender might let you borrow just a few hundred dollars if that’s all you need to cover your bill.
Where to find the best short-term loans
Many lenders specialize in short-term loans. Here are some of the best places to look.
Online short-term loans
If you need to borrow a small amount, a short-term personal loan is probably your best bet. They’re usually unsecured, which means that you won’t have to put your car or home on the line if you can’t pay your monthly bill.
One of the best places to get a short-term loan is online. Many online lenders specialize in quick approvals and low rates and fees. The application process tends to be easier—you can do so from home. Just fill out the application and upload the required documents.
Here are a couple of online lending options.
|Loan amounts||$5,000 – $100,000||$1,000 – $35,000||$2,000 – $35,000|
|Term lengths||24 – 144 months||36 or 60 months||24 – 60 months|
|APRs||3.49% – 19.99%||7.99% – 35.97%||9.95% – 35.99%|
|Origination Fee||0%||2.9% – 8%||Up to 4.75%|
|Visit lender||View Rates||View Rates||View Rates|
Other types of short-term loans
If you have trouble qualifying for a traditional, short-term personal loan, you might consider another type of loan that’s available. Typically, they’re not the best option when compared to personal loans and pose additional risks, so you should think carefully before turning to one of these options.
Car title loans
Car title loans are usually offered by local lenders and are popular because they can be a source of fast cash without a credit check. Of course, there’s a catch. To take out a car title loan, you must put up your car as collateral. If you fail to make monthly payments, the lender can repossess your vehicle.
Car title loans are especially risky because if you need to borrow money to cover a small, unexpected bill, you might also have problems paying your loan off if you’re hit with another unexpected expense or reduction in income.
This could prevent you from getting to work and reducing your income even further, which is why we recommend you consider an unsecured personal loan first.
To even qualify for a car title loan, you need to own your car or have equity in it, meaning that the car’s value exceeds the remaining balance of your car loan.
Payday lenders specialize in cash advances on your next paycheck to help borrowers cover expenses until their next payday. These lenders are known for charging higher interest rates and exorbitant fees, even for short-term loans.
Many states have passed laws banning payday lending or capping interest rates. A reputable lender might charge between 5% and 36% interest. Meanwhile, payday loans might have APRs exceeding 400% – 1,000%, including the cost of fees.
Many payday loan borrowers wind up in cycles of debt to lenders, using new loans to pay off their old ones and going deeper into debt. Financial experts recommend avoiding payday loans, so see if you can qualify for a short-term personal loan instead.
Short-term loan interest rate: What to look for
When you borrow money, one of the most important things to look at is the interest rate. The higher the interest rate on a loan, the higher the monthly payment and cost over the life of the loan. If you have bad credit, you’ll tend to get a higher interest rate. Good credit usually gets you a lower rate.
However, you should also consider fees, as a lender with low rates and high fees could end up costing more. That’s why you should compare APRs rather than interest rates when choosing between multiple lenders.
All else being equal, your goal should be to get the loan with a lower APR. The exact rate that you’ll pay depends on your choice of lender, the size and term of the loan you need, and your credit score.
For a personal loan, reputable lenders tend to charge rates between 5% (if you have excellent credit) and 36% (if your credit is poor), though there’s some variation in those ranges.
Pros & cons of short-term loans
- Quick funding
- Low minimums
- Usually have less stringent credit requirements
- Many predatory lenders operate in the space
- High interest rates
- High fees
How to get a short-term loan
Most lenders allow you to apply for a loan online, so the first step toward getting a short-term loan is visiting a lender’s website. Look at the list of loan options and find the one that appeals to you.
You can then get a rate quote by providing some basic personal information, such as your name, address, Social Security number, how much you plan to borrow, and why you need it.
Compare loan prequalified offers from multiple lenders to find the best combination of interest rates, term options, and borrowing amounts, then choose your loan provider. Once you’ve chosen a lender, you can submit a full loan application.
You’ll need to provide additional financial information and documentation, which usually includes:
- Proof of your annual income (W-2s, pay stubs)
- Your monthly housing payments (lease, mortgage agreement)
- Proof of other assets
- The loan term that you want
- Bank account information
Lenders will also check your credit report and score and use all of this information to make a lending decision. Once you’re approved, just wait for the cash to arrive in your account.
Recap of online short-term loans
Author: TJ Porter