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Types of Short-term Loans
Personal Loans
Personal loans can be both long- and short-term loans. The personal loan term usually lasts from 12 to 60 months.
You can get these installment loans for any personal purpose. However, your interest rates will depend on your credit history. The higher the credit score you have, the lower interest rates you will be charged.
The loan amounts you can receive on personal loans are from $1,000 to $100,000. The loan cost may also include origination fees, late payment fees, and prepayment fees.
Personal loans can be both secured and unsecured. Unsecured personal loans do not require collateral. The terms you will get depend on your creditworthiness. Secured personal loans require collateral or a security deposit and have fewer requirements for credit history and income.
Paycheck Advance
You can consider it as borrowing from yourself. Your employer will send you a check in advance for the work you have already done. This short-term loan allows you to get money, not in the two weeks or a month' period, but as you need it. The chances you will get a loan will depend on your employer's willingness.
Paycheck advances with your employer do not have an interest. However, if your employer does not offer any advances, you can try the paycheck advance apps. The loan amount you receive will be deducted from your bank account when your paycheck arrives. Some paycheck advance apps have membership fees.
The amounts you typically can borrow are quite small. Some apps limit it to $100, or $200, while others allow you to receive up to $500.
Credit Card Advances
Credit cards have a cash advance option when you apply for them. Cash advances frequently come at a different interest rate than your card. You can draw money at an ATM using your credit card or through a check mailed by your lender.
The loan amounts depend on the credit limits. You can increase the limit if you use the credit card responsibly.
If you need a cash advance and have a low-interest credit card or cannot qualify for a good credit history loan, this option may be quite suitable.
Pawnshop Loans
These loans are secured by your valuable assets. If you fail to pay the loan back, your asset will be used to cover the loan amount.
Pawnshops offer loan amounts of only 25% to 60% of your asset. Typical pawnshop loan amounts are from $100 to $1,000. The loan terms last for 30 days. You will be charged fees equal to 200% and more APR.
As pawnshop loans do not check credit history, you do not need to have a high credit score.
Payday Loans
Payday loans are short-term loans with expensive interest rates. You take the loan on your future paycheck and usually need to provide proof of income and a bank account.
Payday loans may not require a credit check but issues high interest rates and fees. The interest rate you can get on a typical payday loan goes up to 400%, while the loan term will be up to 2 or 4 weeks. The interest rates may be charged in the form of fees. For each $100 borrowed, you will get a $10 to $30 fee.
The most loan amounts you can get on payday loans are $500 or up to $1,000. This will be an expensive credit, and before you apply for it, make sure you can pay it back.
Car Title Loans
Car title loans secure the loans with your vehicle's value. You can receive larger loan amounts, up to $50% of your vehicle's value. The loan amounts for car title loans are from $100 to $5,500.
The lender will repossess your vehicle if you default on your loan. Because your interest rate can be up to 300% and the loan will last up to 30 days, there is a high chance of default or rolling up your loan.
Do not opt for this loan option if you cannot pay it back. You might fall into severe debt and lose your vehicle.
How to Shop for a Short-term Loan
To get a good short-term loan, pay attention to the following factors:
- Loan terms. As you are looking for a short-term loan, your repayment terms will be from 30 to 60 days. This will not allow you to receive high loan amounts, and you will typically require making weekly payments or paying back one large payment to cover the total loan amount.
- Interest rates. Your APR will determine how much you will overpay on your loan. If you have a higher credit score, you will get lower loan interest rates. However, payday loans, car title loans, and other short-term loans may have triple digits interest rates no matter what credit scores their applicants have.
- Fees and penalties. Lenders charge origination fees for processing your loan of 1% to 10% of your loan amount. For paying your loan early, there may be prepayment fees. For being late with your fixed payments, you might get late payment fees.
- Funding time. If you need money urgently, you may get same-day funding or receive the money within one business day. Most online lenders will disburse funds quickly. However, if you are applying for credit unions, the procedure might take up to a week.
Once you have determined the loan amounts, loan terms, and interest rates you want to receive, you can look for the loan options available. The more offer you find, the better, as you can use a personal loan calculator to determine your weekly or monthly payments and the total loan cost. Eliminate the offers you do not find suitable and proceed with the pre-qualification.
Most online lenders have pre-qualification available on their websites. They will conduct a soft credit check and allow you to get personalized loan terms you can qualify with them. Once you pre-qualify, choose three lenders you want to proceed with and upload the documents for the application.
Federal credit unions do not usually allow to pre-qualify, so opt for this only if you have a good relationship with the lender. Credit unions cap their interest rates at 18%, so you can receive a suitable loan for a lower cost.
How to Qualify for a Short-term Loan With a Bad Credit
If you cannot qualify for a minimum credit score requirement, there is still a chance you will get a good short-term loan.
- Co-signed Loans. You can opt for an unsecured loan with a co-applicant. Co-signed loans allow you to receive funding from a person who meets the lender's requirements. The person will be responsible for repayment terms if you default on your short-term loan.
- Secured Loans. You will not need to have a high credit score if you secure a short-term loan with your asset. Collateral will be repossessed in case you fail to pay it back. This eliminates the risk for the lender, so you will get a loan on better terms than an unsecured loan.
- Traditional Loan. You can still get a good loan if you meet other requirements. Having a high income and a good debt-to-income ratio will help you qualify. Make sure the situations that caused your credit score to drop are resolved, and your lender sees it.
It is best to have your DTI ratio of 30% top. Payment history will also contribute hugely to your credit score, so you may want to first deal with your monthly payments on bills.
Avoid Predatory Lenders
Once you start shopping for short-term loan lenders, you will see some of them are quite suspicious. It is especially true for payday loans. To ensure you do not fall victim to a predatory lender, follow these tips:
- If the short-term lenders do not pull a credit report from credit bureaus and do not report your payments, they might want to take advantage of you.
- Avoid astronomical interest rates and fees. Once you receive loan funds, your repayment terms start, along with the fees and interest you must repay. Too high interest may cause severe debt.
- Some lenders do not state their fees upfront, and you can only see them when you take a loan or default. Hidden fees will make your loan cost higher. Make sure you know about the loan origination fee, prepayment penalties, and prepayment fees before you sign the loan agreement.
- Some online lenders may require direct access to your bank account. This may be a checking or savings account the lender wants you to give them access to. Do not do it because the lender may withdraw funds from your account at any time.
- Reviews and feedback will be the most helpful indicator. Check if your online lender has positive reviews and is accredited by BBB.
If you see most of these signs with the lender you want to submit the loan application to, do not take this short-term personal loan with them. Opt for credit unions or traditional lenders first, and if you are not approved, then shop for payday loans or other online lenders.
Best Short-term Loans
To avoid predatory lenders, you may stick to these loan options. These are the best online lenders you can opt for taking a short-term loan.
- Avant: Quick Funding. These are personal loans issued for 12 to 60 months. The annual percentage rates you can get range from 9.95% to 35.95%. The loan funds are from $2,000 to $35,000. The minimum credit score requirement is 580. You can receive funds in one business day. However, there is an origination fee of up to 4.75%, but you will not be charged prepayment fees.
- LendingPoint: Co-borrowing. It is a P2P lending marketplace, so you will submit an application, and the lenders will decide whether to give you loan approval. The repayment terms are 24 to 72 months. This online lender charges an APR of 7.99% to 35.99%. The personal loan amounts are from $2,000 to $36,500. For bad credit borrowers, there is an option to apply with a co-borrower. The origination fee is from 1% to 5%.
- Upgrade: Secured Loans. Bad credit borrowers may also opt for unsecured personal loans issued by Upgrade. The repayment period is 24 to 84 months. Annual percentage rates are between 7.956% and 35.97%. The credit limit is $1,000 to $50,000. There is a loan origination fee of 1.85% to 8.99% of the loan amount. You can receive funds in one business day.
