5 Types of Short-Term Loans That Might Work (and 5 to Absolutely Avoid)

Cash in a hurry. That’s the best way to sum up short-term loans: typically, these are any loans you pay back within 12 months, though the terms can last as little as a few weeks, as with an advance on a paycheck. But if “cash in a hurry” raises a few red flags, that’s for good reason. They’re not always a good idea.

That’s why we’ll break down how short-term loans work, any advantages and drawbacks they might have, and address the specific times they might be the right choice for your situation. We’ll also tackle whether you should avoid them while highlighting some better alternatives.

Table of Contents

1. 10 types of short-term loans
   1. ✅ 1. Cash advance apps
   2. ✅ 2. Short-term personal loans from reputable lenders
   3. ✅ 3. Personal lines of credit
   4. ✅ 4. Emergency loans from legitimate sources
   5. ✅ 5. Credit union loans
   6. ❌ 6. Payday loans
   7. ❌ 7. Car title loans
   8. ❌ 8. Credit card cash advances
   9. ❌ 9. Bank overdrafts
   10. ❌  10. Bad-credit loans (high-interest or predatory lenders)
2. Benefits of short-term loans
3. Risks and drawbacks
4. When to use short-term loans
5. When to avoid short-term loans

10 types of short-term loans

✅ 1. Cash advance apps

• When we recommend these: If you’re in a pinch and need to cover expenses before your next paycheck. Ideally, you’ll have steady employment, making you capable of repaying this advance once the new paycheck comes in.
• How they work: Cash advance apps will provide $100 to $500—a portion of your paycheck—without the traditional interest charges you might expect. As long as you pay them back in a hurry, you may only charge optional tips or subscription fees. (It’s when you fail to pay back that big-time interest rates kick in.)
• Where to get them: Browse our list of the best cash advance apps like EarnIn, which make cash advances easier and offer high maximums, up to $750 per pay period.

✅ 2. Short-term personal loans from reputable lenders

• When we recommend these: If you need quick cash for more substantial sums—like medical bills or car repairs—you can pay back short-term personal loans by making fixed monthly payments.
• How they work: The best personal loans work when you only need $1,000 to $5,000 for short-term expenses and expect to pay that back within six to twelve months. Granted, there are always pros and cons to weigh.
• Where to get them: Consider PNC and Credible here. PNC has extensive experience with personal loans, and Credible is a great platform for checking multiple offers on personal loans with 12-month terms.

✅ 3. Personal lines of credit

• When we recommend these: A personal line of credit is great if you need flexible access to funds, but aren’t quite sure how much you have to borrow yet. This is ideal for home renovations (where the estimates can vary wildly) or irregular expenses such as medical issues.
• How they work: A line of credit is not a loan. A borrower can get approved for a maximum credit limit. You can then draw funds from this limit only as needed. You’ll only pay interest on the amount you use.
• Where to get them: Resources like U.S. Bank can offer personal lines of credit. You can take one out even if you’re not sure whether you need the credit just yet.

✅ 4. Emergency loans from legitimate sources

• When we recommend these: An emergency loan can be a quick same-day loan you may need for something especially urgent, like medical bills or home repairs.
• How they work: Because speed is the priority here, these are often unsecured personal loans with expedited approval processes. Depending on the lender, repayment terms can range from one to five years.
• Where to get them: SoFi has a good reputation for personal loans, and some of its two-year term loans even offer same-day funding.

✅ 5. Credit union loans

• When we recommend these: If you’re a member of a credit union and need lower interest rates and personalized services—or if you have moderate credit scores—credit union loans can be a great way to secure lower rates.
• How they work: Credit union personal loans can range up to $25,000 in many cases, with generous repayment terms of up to five years. 
• Where to get them: A good example of how flexible these can be? PenFed, offering options like 36, 48, or 60 months for your loan terms and amounts up to $20,000.

I’d start with this question: Do you need money today or do you need access to money soon? If you need money now, I’d suggest a personal loan and make it your mission to pay it off ASAP. Personal loans are straightforward and simple. With a small enough loan and the ability to pay it back quickly, you won’t lose too much in interest.

If you need access to money soon (30-60 days), I would suggest you consider a line of credit (personal or HELOC). That way you can use it for what you need, pay it off, then still have a line of credit you can use later if needed.

❌ 6. Payday loans

• Why we don’t recommend these: Payday loans are short-term and high-interest. If you start relying on them, you can get into a dangerous debt cycle thanks to the ridiculously high payments.
• How they work: Payday loans bait you with small amounts, often up to $500, with an agreement to repay—plus a fee. With annual percentage rates (APRs) sky-high, they’re some of the most expensive short-term loans you can get.

❌ 7. Car title loans

• Why we don’t recommend these: Simply put, you’re risking your car. A car title loan “secures” the money of your short-term loan by having you put up the car title as collateral, which puts your car ownership at risk.
• How they work: You can borrow against 25-50% of your vehicle’s value with repayment periods as short as 30 days. If you fail to pay—which can mean paying high interest rates—you risk losing the entire title to the car.

❌ 8. Credit card cash advances

• Why we don’t recommend these: Cash advances make for expensive money: high fees and interest rates. That puts you in the danger zone of entering an unpleasant debt cycle.
• How they work: When you have a credit card, you can withdraw cash up to a certain limit. That cash goes towards your credit card balance. You already know how high those credit card interest rates are—and these advances can often come at a higher rate than those.

❌ 9. Bank overdrafts

• Why we don’t recommend these: Relying on bank overdrafts as a form of short-term borrowing can add up to more fees than they’re worth—not to mention a form of financial instability that never feels good.
• How they work: Some people write more checks than they have money to cover, trusting that the overdraft fees will be worth the short-term cash relief. You may also find that the more you overdraft, the more it might harm your relationship with the bank, which makes it harder to be financially flexible later in life.

❌  10. Bad-credit loans (high-interest or predatory lenders)

• Why we don’t recommend these: Bad-credit loans charge excessive interest rates and take advantage of you with unfavorable terms. If you’re in financial distress, they’re risky due to the fine print.
• How they work: Bad-credit lenders target anyone with low credit scores. The minimal approval requirements can seem like a bit of good luck—until you see the excessively high APRs and aggressive repayment schedules that can make it hard for you to get out of debt.
• Watch for red flags like fees hidden in the paperwork and sky-high interest rates that no one should ever have to pay.

I would avoid payday loans like the plague. Welcome to a black hole that is nearly impossible to get out of if you are living paycheck to paycheck. A car title loan would be a very poor choice as you likely have access to other options if you have equity in your car. I’d sell my car and get a cheaper one before I’d suggest a car title loan. Everything above with a Red X is a poor choice in almost all circumstances due to the high interest rates and fees.

How short-term loans work

Short-term loans give you quick access to cash. That’s the “product” being sold to you. And since you’re getting money quickly—which is a high-risk prospect for anyone loaning out the money—that risk tends to translate into high interest rates.

Repayment structures with short-term loans can vary. Some will ask for lump-sum payments, or you may be asked to make fixed monthly payments within a year. In some cases, you may have revolving credit, allowing you to withdraw, repay, and borrow again. Depending on the type of loan you get, you may be exposed to fixed or variable rates, as well.

Ultimately, how your short-term loan works out depends on who you’re borrowing from, your creditworthiness, and the type of short-term loan provided.

Benefits of short-term loans

Short-term loans offer plenty of benefits:

• Quick access: Faster approval and funding make them great for dealing with urgent expenses, or emergencies
• Flexibility: You may not have to use the funds towards any specific purpose—or you can choose to use them for multiple reasons
• Easier qualifying: Short-term loans are often for people who live closer to paycheck-to-paycheck, which means credit standards won’t be as high
• Less long-term debt: If you have the ability to pay off a loan, your access to short-term cash doesn’t have to be very expensive

Risks and drawbacks

• High interest rates: With shorter-term loans and more risk for the lender, you’ll pay for that convenience in the form of higher rates.
• Limited loan terms: Want to borrow more? Short-term loans tend to only give you enough to handle emergency payments, which makes them less flexible for your bigger aspirations.
• Collateral requirements: You won’t squeeze much juice out of your car’s title, but a title loan will require you to put up your whole car, for example. 
• The potential to get trapped: If you rely on short-term loans, failing to make even one payment can make it more difficult to get by.

When to use short-term loans

Short-term loans are best when you can rely on steady paychecks but lack the necessary cash to make a payment quickly. For instance, sudden medical bills or urgent car repairs may make it necessary to get these expenses behind you so you can get back on your feet.

If you have consistent income but sudden unplanned expenses, it might be easier to make payments on a short-term loan while using the funds to cover any gaps between paychecks. Additionally, a short-term loan can help set you up for earning an income—such as by getting yourself on your feet with temporary living expenses as you begin a new job.

When to avoid short-term loans

• Getting into a cycle of debt. If you need a short-term loan to cover regular expenses, it’s like trying to put a band-aid on a leaky faucet. This puts you in danger of getting into a debt cycle that you can’t escape without cutting back on expenses.
• Paying off long-term debts. If you have a student loan and want a short-term loan to pay part of it off, you’re swapping a less-expensive long-term loan for a more expensive one.
• If you’re not sure you can pay it back. You need a plan for paying back a loan, even if you don’t have the cash to do so right away. Consistent or incoming payments, for example, can give you the confidence you need to take a short-term loan.

How can you avoid needing a short-term loan?

Start with everyone’s least favorite word: budgeting! Without the awareness of how much and where you are spending your money, how can you even begin to cut back?

Lock down your fixed expenses and track them all. Do your best to understand your discretionary expenses. Cut expenses mercilessly on things you don’t enjoy. Then, begin to pay yourself first.

If you get paid, and immediately put $X in a separate savings account, you are much less likely to tap into that account to spend it like you normally would. Even as hard as it sounds, start somewhere! Even if it’s $10 per month. You must first build the habit of good finances before you can enjoy the fruits of them.

If you are in a position of taking out a short-term loan, do what you must to get through your financial situation without negative ramifications. Then do the hard work to begin setting money aside. It all starts with good habits and intentional decisions. Get a side hustle if your regular income and cutting expenses don’t help make ends meet.

Best alternatives to short-term loans 

Longer-term personal loans

A longer-term personal loan can come at far lower interest rates than a bank or credit union might charge you. Services like Upstart can potentially connect you to personal loans like this if you don’t have anyone in your life who is currently capable of making a long-term personal loan to you.

Negotiating payment plans

Before you take out a short-term loan to pay off medical bills, for example, have you exhausted every opportunity to pay it off through other means? Sometimes you can ask for itemized bills so you can contest individual payments—potentially reducing your costs.

Build an emergency fund

This requires advanced planning, but a “rainy day” fund—even if it’s just several hundred dollars—can prevent a sudden car repair from derailing your entire month. For certain expenses, you might also consider taking out a credit card with a 0% introductory APR to pay for car repairs, which gives you some runway.