A Comprehensive Guide to Short-Term Loans

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What Is a Short-Term Loan?

Short-term personal loans are a type of unsecured installment loan. With these loans, you receive the entire loan amount upfront and repay it with periodic installments. Unlike traditional personal loans, which have monthly payments and are repaid over several years, short-term personal loans are often repaid within a year or two.

Understanding Short-Term Loans

A short-term loan isn’t a specific type of loan but rather one with a short repayment period. The term can vary, but you might need to repay the loan within a few weeks or months. Even loans that require repayment within one or two years could be considered short-term loans.

Examples of short-term loans include payday loans, auto title loans, pawnshop loans, and high-cost installment loans. These loans often share characteristics such as high interest rates or fees, frequent payments, and low or no credit score requirements.

Eligibility, interest rates, and fees can depend on your creditworthiness, the loan amount, and the lender. People may turn to short-term loans when they’re in a financial bind and can’t qualify for traditional loans with more favorable terms.

Pros and Cons of Short-Term Loans

Short-term loans have their place, but it’s essential to consider the pros and cons before applying.

Pros

• Easy to qualify for: Lenders often review your creditworthiness and consider your income and history with similar types of debt. They may not always check your credit history or require a good credit score.

• Fast funding: You might receive the funds within one or two business days, or even the same day if you go to a storefront lender.
• High loan limits: You might be able to borrow several thousand dollars with an auto title loan or high-cost installment loan.

Cons

• High rates and fees: Lenders often charge higher interest rates or loan fees on short-term loans.
• Short terms make repayments difficult: Frequent payments can make it challenging to repay the loan and your other household bills. Some borrowers end up rolling over the loan to extend its term or taking out a new loan to pay off the current loan.
• More fees than other types of loans: You might be charged fees that aren’t as common on other types of loans, such as processing fees or a fee to roll over the loan.

Alternatives to Short-Term Loans

Short-term loans often aren’t the best option due to high financing costs and frequent payments. However, consider these alternatives before seeking out a short-term loan:

• Call 211: The free 211 hotline can help you find programs and organizations that might lower your bills or offer financial assistance.
• Hardship and payment protection plans: Your current lenders and credit card issuers may have hardship programs or payment protection plans that can temporarily lower or pause your monthly payments.
• Credit cards: Credit cards often have high interest rates, but they could still be more affordable than some short-term loans. Credit card cash advances may have higher interest rates and fees but could still be better than a payday loan.
• Paycheck advance programs: Ask your employer or look into paycheck advance apps that allow you to get an advance on your paycheck without paying high fees.
• Payday alternative loans: Some credit unions offer payday alternative loans (PALs), which might provide a one- to 12-month loan for up to $2,000 with a maximum interest rate of 28%.
• Friends and family: Ask a friend or family member for a small loan or help paying bills. They might offer a low- or no-cost loan, but consider the personal ramifications if you can’t afford to pay them back.
• Get a cosigner: You could ask a close friend or family member with good credit to cosign a loan. A creditworthy cosigner can help you qualify for more favorable loan offers, but missing a payment could hurt their credit.

Get Matched With Loan Offers

It’s always a good idea to compare offers before taking out a loan. You can check your credit report and credit score for free to get a sense of which types of loans you might be able to get. O1ne Mortgage can help match you with personal loan offers based on your credit profile.

For any mortgage service needs, call us at 213-732-3074. At O1ne Mortgage, we are committed to providing you with the best service and helping you find the right loan for your needs.

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