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What are short term loans?

Short Term Loans: What are They & How to Get Them

Updated on December 26, 2023


In today's fast-paced world, financial needs can arise unexpectedly, leaving us searching for quick solutions to bridge the gap between paychecks or cover unforeseen expenses. This is where short term loans come into play. Short term loans, also a type of personal loan, provide borrowers with a flexible financial lifeline to address their immediate needs.

This article will help you take a look at what short term loans are, how they work, the pros and cons, alternatives to consider, and reasons to avoid them.

What is a Short Term Loan?

A short term loan is a type of borrowing that provides individuals with a relatively small amount of money for a brief period, typically ranging from a few weeks to a few months. These loans are designed to meet immediate financial needs, making them a convenient choice for those facing unexpected expenses, emergencies, or temporary cash flow problems. Unlike traditional loans, which may span years, short term loans are repaid quickly, often in one lump sum, allowing borrowers to regain their financial stability swiftly.

How Do Short Term Personal Loans Work?

Short term personal loans function as a quick financial solution when you need immediate access to cash. Here's how they typically work:

Application: To begin the process, you must fill out an application with a lender. Depending on the lending institution, this can often be done online or in person.

Approval: After submitting your application, the lender assesses your eligibility based on your credit score, income, and employment history. Approval times can vary, but short term loans typically have a quicker approval process than long-term loans.

Loan Amount: Once your application is approved, you'll receive the requested loan amount. Short term loans typically offer smaller amounts than long-term ones but vary depending on the lender.

Repayment Terms: Repayment terms for short term loans are, as the name suggests, short. You must repay the loan in full, along with any interest and fees, within a specific timeframe. This can range from a few weeks to several months, depending on the terms and conditions set by the lender.

Interest and Fees: Short term loans often have higher interest rates and fees than long-term loans. Lenders charge these fees to compensate for the shorter repayment period and the perceived risk associated with lending to borrowers with immediate financial needs.

Repayment: You must make payments according to the agreed-upon schedule until the loan is fully repaid. This is usually done through automatic withdrawals from your bank account.

Completion: Once you've made all the necessary payments, the loan is fully repaid, and the financial obligation is settled.

Features of Short Term Loans

Short term loans have distinctive features that set them apart from other types of borrowing:

  • Quick Approval: These loans are designed to provide fast access to funds, making them ideal for emergencies or urgent financial needs.
  • Shorter Terms: Short term loans are typically repaid over a shorter period, ranging from a few weeks to a few months, as opposed to long-term loans, which may extend for several years.
  • Smaller Loan Amounts: These loans usually offer smaller loans, suitable for covering immediate expenses but may need to be larger for significant long-term financial goals.
  • Higher Interest Rates: Due to the quick turnaround and perceived risk associated with short term lending, interest rates are often higher than traditional loans.
  • Flexible Eligibility: Some short term lenders are more lenient with their eligibility criteria, making it possible for individuals with less-than-perfect credit scores to qualify.
  • Varied Lending Sources: Short term loans can be obtained from various sources, including traditional banks, online lenders, credit unions, and peer-to-peer lending platforms.
  • Collateral vs. Unsecured: Short term loans can be secured, where you provide collateral, or unsecured, without needing collateral. This depends on the lender and the specific loan type.

Pros and cons of short term loans

Pros & Cons of Short Term Personal Loans

Like any financial product, short term loans have their advantages and disadvantages. It's essential to carefully weigh these factors before deciding if a short term loan is the right solution for your financial situation.


1. Quick Access to Funds

Short term loans offer rapid approval and disbursement of funds, making them ideal for addressing immediate financial needs and emergencies.

2. No Long-Term Commitment

You're not locked into a multi-year repayment plan. Short term loans are typically paid off in a few months, quickly resolving your financial challenges.

3. Flexibility

You can use short term loan funds for various purposes, including medical bills, car repairs, utility bills, or other unexpected expenses.

4. Limited Impact on Credit Score

Short term loans can help build or improve your credit score if you make timely payments.

5. Potential for Borrowers with Lower Credit Scores

Some lenders may be more lenient with credit score requirements, increasing accessibility for those with less-than-perfect credit.


1. High Interest Rates and terms

Short term loans typically come with higher interest rates and fees, which can significantly increase the overall cost of borrowing.

2. Small Loan Amounts

The loan amount available with short term loans may need to be increased for more considerable expenses or long-term financial goals.

3. Risk of a Debt Cycle

If not appropriately managed, the quick turnaround for short term loans can lead to a cycle of borrowing, making it challenging to break free from debt.

4. Limited Repayment Time

Short term loans must be repaid quickly, which can be challenging for those with tight budgets.

Types of Short Term Loans

Various types of short term loans are available, each tailored to specific financial needs and preferences. Understanding the differences between these types can help you choose the right one for your situation.

Payday Loans

Payday loans are among the most well-known short term loan types. They are typically unsecured and designed to provide quick cash until your next paycheck. These loans are usually for small amounts and come with high-interest rates. Payday loans have a reputation for their accessibility but also their high costs.

Installment Loans

Installment loans allow borrowers to repay the loan over a set period with fixed monthly payments. The interest rates on installment loans are typically lower than those of payday loans, making them a more affordable short term borrowing option. They are available for various purposes and can be either secured or unsecured.

Line of Credit

line of credit offers a revolving credit limit you can borrow from as needed. This type of short term loan provides flexibility and convenience. You only pay interest on the amount you use, and you can borrow repeatedly as long as you stay within your credit limit.

Personal Loans

Personal loans are unsecured loans offered by banks, credit unions, or online lenders. They can be short term or long term and are versatile, as they can be used for various purposes, from debt consolidation to emergency expenses.

Invoice Financing

Invoice financing is a short term borrowing option for businesses. It involves selling unpaid invoices to a lender in exchange for immediate cash. This can help companies to improve their cash flow while waiting for customers to pay their outstanding invoices.

Cash Advances

Cash advances are short term loans often offered by credit card companies. They allow cardholders to withdraw cash against their credit limit. These advances typically come with high fees and interest rates, so they should be used sparingly.

Title Loans

Title loans are secured short term loans using your vehicle's title as collateral. These loans are typically for smaller amounts and come with high-interest rates. If you fail to repay the loan, the lender can repossess your vehicle.

When to Consider a Short Term Loan?

Short term loans can be beneficial in specific situations, including:

  • Emergency Expenses: When unexpected bills or emergencies arise, you need access to immediate funds.
  • Temporary Financial Gaps: If you're facing a temporary financial gap and need assistance until your next paycheck.
  • Credit Score Improvement: Using a short term loan to build or repair your credit score through timely payments.

However, it's essential to consider the potential downsides and your ability to repay the loan on time before pursuing one.

Where To Get Short Term Loans?

Short term loans can be obtained from various sources, including:

  • Traditional Banks: Many conventional banks offer personal loans with short term options, although they may have stricter eligibility requirements.
  • Credit Unions: Credit unions often provide short term loans to their members at competitive rates.
  • Online Lenders: Numerous online lenders specialize in short term loans, offering quick and convenient access to funds.
  • Peer-to-Peer Lending Platforms: These platforms connect borrowers with individual investors willing to provide short term loans.
  • Payday Lenders: Payday loan stores or online lenders specialize in short term loans, often with quick approval but high fees.

It's crucial to research and compare the terms and rates offered by various lenders to find the best fit for your financial needs.

How to Get a Short Term Loans for Bad Credit

Securing a short term loan involves several steps:

  1. Determine Your Needs: Assess your financial situation to determine the amount you need and how quickly you can repay it.
  2. Research Lenders: Compare different lenders and consider interest rates, fees, and eligibility criteria.
  3. Complete the Application: Fill out the lender's application, providing accurate and complete information.
  4. Approval and Documentation: Once approved, the lender may require additional documentation for verification.
  5. Read the Terms: Carefully review the loan terms, including the interest rate, repayment schedule, and fees.
  6. Accept the Loan: If you agree to the terms, accept the loan and follow the lender's instructions for receiving the funds.
  7. Repayment Plan: Develop a repayment plan to ensure you can repay the loan on time.

Tips to Compare Short Term Loans

Comparing short term loans is a crucial step when considering borrowing options. Evaluating and contrasting different loan offers can help you secure the most favorable terms and avoid unnecessary costs. Here are some tips to consider when comparing short term loans:

1. Interest Rates

Interest rates play a significant role in the overall cost of a short term loan. Different lenders may offer varying interest rates, so comparing and choosing the one with the lowest rate is essential. A lower interest rate can save you money on the total repayment. Be sure to understand whether the interest is fixed or variable and how it may change over the loan term.

2. Fees

In addition to interest rates, short term loans often come with various fees. These include application fees, processing fees, and late payment penalties. Carefully read the fine print to identify all potential charges associated with the loan. Make sure to choose a loan with minimal fees to keep your borrowing costs as low as possible.

3. Loan Terms

Examine the loan terms to understand the repayment schedule and duration. Short term loans come with a shorter repayment period than traditional loans, but the specific times can vary. Consider whether the loan term aligns with your financial situation and ability to repay the loan comfortably. Additionally, shorter loan terms can often result in higher monthly payments.

4. Repayment Flexibility

Some lenders may offer flexibility in their repayment options. Knowing whether you can make extra payments or repay the loan early without incurring prepayment penalties is essential. Repayment flexibility can be valuable if your financial situation improves and you want to pay off the loan ahead of schedule.

5. Eligibility Requirements

Different lenders have varying eligibility criteria. Ensure that you meet the lender's requirements before applying to increase your chances of approval. While some lenders may be more lenient with credit scores, others may prioritize other factors, such as income or employment stability.

6. Loan Amounts

Consider whether the loan amount the lender offers meets your specific financial needs. Short term loans typically provide smaller loan amounts than long-term ones, so ensure that the loan you're considering can cover your immediate expenses or financial goals.

7. Customer Reviews and Reputation

Research the lender's reputation by reading customer reviews and testimonials. Positive feedback from previous borrowers can indicate a reputable and trustworthy lender. Conversely, negative reviews may be a red flag, suggesting potential issues with the lender's practices or customer service.

8. Consider Multiple Lenders

Refrain from settling for the first loan offer you receive. Instead, consider multiple lenders to compare their terms and conditions. Obtaining quotes from different lenders can help you identify the most competitive loan offer.

Can I get a short term loan with bad credit?

Alternatives to Short Term Loans

When facing a financial challenge, exploring alternatives to short term loans is crucial before committing to borrowing with high-interest rates and fees. Here are some alternative options to consider:

Take Help from Friends & Family

One of the most accessible and potentially cost-effective alternatives to short term loans is seeking help from friends and family. Loved ones may be willing to provide financial assistance without interest or fees, making this a favorable choice. However, it's vital to approach such transactions with caution. To maintain healthy relationships, it's advisable to establish an explicit agreement regarding the terms of the loan or assistance, including repayment plans and any expectations. Open and honest communication is critical to preventing misunderstandings.

Credit Card

Credit cards can be a viable alternative to short term loans, especially if you have an available credit limit. Credit card transactions typically come with a grace period during which you can pay off your balance without incurring interest. Suppose you repay the borrowed amount within this grace period. In that case, it can be cost-effective to cover immediate expenses. However, it's essential to avoid accumulating high-interest debt on the card, as credit card interest rates can be significant if the balance is carried over from month to month.

Salary Advance

Some employers offer salary advances or workplace loans to their employees. This can be a convenient and cost-effective way to access a portion of your upcoming paycheck in advance. While the terms and availability of salary advances may vary from one employer to another, it's worth inquiring if your workplace provides this option. It's important to note that this option is contingent on your current employment and employer policies.

Borrow Credit With a Cosigner

Suppose you need help qualifying for a short term loan independently due to a limited credit history or a low credit score. In that case, consider finding a cosigner with a strong credit payment history. A cosigner vouches for your ability to repay the loan, making it more likely for you to secure a loan with better terms and lower interest rates. Remember that your cosigner assumes responsibility for the debt if you fail to repay, so choosing this option with a trustworthy and willing individual is crucial.

Consider 401(k) Financing

If you have a retirement savings account, such as a 401(k), you may have the option to borrow against it for short term financial needs. 401(k) financing allows you to access your retirement savings and repay the loan with interest over a set period. While this can be a way to access funds quickly, using this option sparingly is vital, as it can impact your retirement savings. If you leave your job, the outstanding 401(k) loan balance may become due immediately or be considered a withdrawal, potentially subject to taxes and penalties.

Reasons to Avoid Short Term Loans

While short term loans can be a valuable tool in certain situations, there are reasons to exercise caution and consider alternatives:

High-Interest Rates & Fees

The primary drawbacks of short term loans are the exorbitant interest rates and fees they typically carry. Due to the swift turnaround and perceived risk associated with lending to individuals with immediate financial needs, lenders often charge significantly higher interest rates than traditional loans. These elevated costs can substantially increase the amount you must repay, making short term loans expensive.

The high-interest rates can lead to borrowers paying back substantially more than they initially borrowed, making it challenging to regain financial stability. In many cases, these fees can exacerbate the financial difficulties that prompted the need for a short term loan in the first place.

Affect Credit Score

Another crucial reason to be cautious with short term loans is their potential impact on your credit score. While they can be used to build or improve your credit if you make timely payments, they can also harm your credit if you fail to meet the repayment terms. A late payment or default on a short term loan can result in negative marks on your credit report, potentially reducing your credit score.

A lower credit score can have far-reaching consequences, affecting your ability to secure future loans or credit at favorable terms. It can also influence your eligibility for housing, employment, and insurance. Therefore, individuals should be acutely aware of the potential credit ramifications of short term loans and ensure they can meet their obligations before pursuing this form of borrowing.

Potentially Hazardous Cycle

Short term loans, if not used judiciously, can lead to a hazardous cycle of debt. The rapid repayment terms and high costs can create a scenario where borrowers take out additional loans to cover the repayment of existing ones. This cycle can become a never-ending loop, with borrowers continually borrowing to make ends meet.

This cycle of debt can be challenging to break free from and can lead to worsening financial situations over time. It may result in ongoing economic stress, limited savings, and reduced long-term financial stability.


In conclusion, short term loans can be a valuable financial tool to address immediate needs or emergencies. However, they should be used wisely, clearly understanding the terms, costs, and potential impact on your financial health. Before pursuing a short term loan, explore alternatives and carefully evaluate your ability to repay it to ensure it is the right choice for your unique circumstances.

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Harita Solanki

Harita Solanki is a passionate advocate for personal finance and believes in empowering individuals to take control of their financial lives.

Her expertise covers a wide range of personal finance topics, including budgeting, saving, credit, debt management, and retirement planning.

With over six years of dedicated experience in the finance industry, Harita has helped countless readers of CASH 1 Loans make informed decisions and achieve their financial goals.

As a dedicated writer, Harita has contributed to numerous financial publications, sharing her knowledge and insights to help readers navigate the complexities of personal finance.

Her writing style is approachable, concise, and tailored to the needs of everyday individuals looking to improve their financial well-being.