A personal loan is a short-term loan, which you can repay over a series of installments. It is a great alternative to traditional short-term loans, offering quick cash for enormously high-interest rates. With a personal loan, you’re entitled to pay the loan off early to free up income in your spending plan and possibly save on interest.
Most short-term loans require proof of employment, a salary statement, a bank account, and a valid driver’s license. Because there is often no collateral and the credit requirements are lower, these loans charge a higher interest rate (up to 400 percent) and may have other fees and penalties.
Let’s dig deeper and explore what short-term personal loans are available, and if there’s any good option for you.
A short-term personal loan is a type of loan with little to no collateral and has a repayment term of less than a year. It may require supportive documents (such as employment proof or your credit card history), but in most cases, you submit an application and get your money within 24 hours.
The short-term loans are offered for the maximum amount of $2,000, with repayment due in weeks. After the company reviews your application, it sends over the contract with the approved amount and interest rates. So, before you agree, you still have a chance to calculate how much you will have to repay.
There are a few main types of short-term personal loans; they have different characteristics, terms, and fee structures:
- Payday loans – the loan providing cash for borrowers, until they get their next paycheck. Let’s say you want a 100 dollar loan today – payday can do it! The only requirement might be proof of your employment with a salary statement. These loans need to be repaid quickly and painlessly – in another case, you’ll be subject to high APRs and fees;
- Bank overdrafts – a form of short-term loan, where customers can get temporary coverage of costs from their bank if the account lacks the necessary costs. In terms of repayment, these loans are similar to installment loans: a borrower will have regular, frequent payments over some time until the principal and interest have been repaid;
- Car title loans – a type of short-term lending, that allows a borrower to use the vehicle as collateral. This is rather exclusion from defining short-term personal loans (which normally don’t have collateral), but it’s a perfect example if talking about the high-interest rate. If you’re late with payments, the interest charges mount, and the loan will cost you far more;
- Bridge loans – are useful during real-estate transactions. For example, when you have purchased a new house, while the other property stays on the market. For this type of loan, you’ll need an impeccable credit score; lenders also prefer borrowers with low debt-to-income (DTI) ratios.
One of the other popular options for short-term loans is extending your line of credit with a credit union or a bank. It may improve your financial situation at a time, with no side effects. As a result, a higher credit line makes you more attractive for lenders.
If you decide to apply for a short-term loan, consider the lenders, who don’t charge penalties. In another scenario, you’ll be demanded to pay additional fees if you want to close the deal before the agreed timeline. Isn’t that deeply unfair, that repaying the loan sooner might cost you more?
Here’s the list of several companies, who won’t charge you for such “service”:
- Happy Money – a loan provider with an innovative approach to lending. It offers personal loans, ideal for consumers, who want to save money. Happy Money consolidates high-interest rates, giving borrowers exclusive access to managing their finances more effectively. Be aware, that whilst there are no prepayment penalties, an origination fee of up to 5% may apply.
- LightStream – the lender that offers some of the lowest interest rates on personal loans. Same-day funding is available, and there are no prepayment penalties or other fees. If keeping in mind that shorter terms of the loan come with lower interest rates, this makes LightStream a considerable option. And your best financial interest.
- SoFi – a loaner, who can give you some credit, if your score is at least 680. The customers of SoFi also get free access to financial advisors, career coaches, and other events, dedicated to raising your financial literacy. This lender features a seamless application experience, making you free from late payment or prepayment fees.
- Upstart – a lender worthy of attention, because of competitive interest rates and fast funding options. Beware, that Upstart will evaluate your credit score and examine your work history to determine if you’re a good fit for a loan. In case, you have a loan from this company and decide to repay it earlier, you won’t be subject to additional fees. However, you will be asked to pay an origination fee of up to 8%, along with late payment costs.
According to Statistics, more than 20 million of Americans have unsecured loans. So, before you get approval for funding, check the company’s repayment policy. Look for additional fees and interest rates that may apply; ask a financial advisor about early repayment.
The Bottom Line
As a sum up for this story, we’d like you to reevaluate the purpose you have for a personal loan. Remember, that you can always ask your friend or family for some cash; do the buy now, pay later option; or simply sign up for a credit card.
Even though short-term loans seem a great opportunity to cover your needs, their fees and interest rates sometimes go higher than 400%. Missing payments will negatively affect your credit score and cost you more in late fees, penalties and interest.
Look for the online lenders providing cash with no additional fees; check the repayment policy, and if there’s anything to pay additionally if you want to close a deal sooner. Make sure, you did your research, and won’t be facing negative consequences, when working with online lenders.