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Short-Term Personal Loans: Defined And Explained

7-Minute ReadUPDATED: June 06, 2022


If you’re considering a short-term personal loan for nearly any reason, you’re not alone. The number of Americans who are taking advantage of the personal loan climate has nearly doubled in the last decade, and for good reason. Personal loans offer borrowers fast and flexible access to the funds they need.

Let’s explore why you might consider a short-term loan, how to get a short-term loan, the types of short-term loans available and the factors you should consider before committing to one.

What Is A Short-Term Personal Loan?

A “short-term loan” is a fairly loose term meant to distinguish a loan with a short repayment period from a loan with a significantly longer repayment period.

In the world of personal loans, short-term loans are designed to issue cash fast to an individual under terms that request full repayment by that individual within a shorter period of time than the more common personal loan term of 36 months or longer. Short-term personal loans are nearly always unsecured, meaning the borrower isn’t risking any collateral to get approved.

Typically, short-term personal loans will have higher interest rates and penalty fees, or offer smaller loan amounts, than longer-term traditional personal loans like one you may get from Rocket Loans.

Types Of Short-Term Loans

Several types of short-term loans are available to borrowers. A few common examples include:

  • Installment loans: An installment loan provides borrowers with a lump-sum of money that is repaid with a fixed monthly payment. Although it’s more traditional to have repayment terms of 36 or 60 months, there are some lenders who offer 12- or 24-month terms.
  • Payday loans: A payday loan is a loan that you can use over a short time frame – typically around 2 weeks – that will coincide with receipt of your next paycheck, which is when you must repay the loan. Most payday loans are no more than $500 and have a high annual percentage rate (APR) charge that you must pay if you don’t repay the loan within the 2 weeks. Unlike traditional loans, payday loans often come with exorbitant interest fees of 390% or higher and the lending of these loans can be predatory. Because of these risks, you should be cautious when considering the use of a payday loan.
  • Cash advances: A cash advance is a short-term loan offered by banks or an alternative lender. You borrow the money against your credit card’s line of credit.
  • Bridge loans: A bridge loan is designed to help home buyers who are buying and selling at roughly the same time and may need temporary financing in between the time their new home closes and when their soon-to-be-old home sells. A bridge loan can cover the down payment or closing costs on the new property, and you’ll pay it off when your existing home sells.

How To Get A Short-Term Personal Loan

The process for getting a short-term loan works as any other but at lightning speed. Lenders that offer short-term personal loans understand that borrowers are typically in emergency circumstances, and these lenders operate to get you funds quickly. You’ll follow the same four steps you would to get a standard personal loan, and you’ll likely have cash in hand within a single business day. Here are the four steps:

  1. Apply for the loan. To qualify for a personal loan regardless of term, you’ll likely be asked to provide the following information:
  • Bank account information
  • Driver’s license or personal identification
  • Pay stubs
  • Bank statements
  • Tax forms
  1. The lender runs a prequalification check. The lender will then evaluate your creditworthiness by pulling a “soft” credit check, which usually doesn’t affect your credit score.
  2. Review your loan offers. Typically, short-term lenders will give you a list of eligible loans and their corresponding terms, and this usually only takes about an hour. Be sure to compare offers from other lenders before agreeing to any terms.
  3. Sign your name and receive funds. Some lenders can transfer funds to your bank account within the same business day, depending on what time you agree to the terms.

Where To Get A Short-Term Personal Loan

Doing your research pays off when it comes to short-term personal loan shopping. You should know that there are two types of personal loans: “secured” and “unsecured.” A secured loan backs itself with collateral, such as your house or car. Lenders issue unsecured loans based entirely on your creditworthiness.

To give you a better idea of the lender and loan landscape, here are the most common types of institutions issuing personal loans:

  • Online lenders: These are known for their convenience. You can get prequalified with soft credit checks (that won’t hurt your credit score) from a range of online lenders, and easily compare terms and rates from the comfort of your home.
  • Traditional Banks: Traditional banks are a good option for a short-term personal loan, especially if you have a long-standing history of on-time payments with your bank. Scoping out rates at your bank is just the first step. Be sure to shop around.
  • Credit unions: The appeal of credit unions is that they’re nonprofit local lenders that may offer more competitive interest rates and flexible terms than a nationwide bank.

It’s challenging to weigh the fine print when you’re under acute financial stress, but thanks to technology, we’ve entered a new age of personal lending. Begin your research by reviewing loan offers from your brick-and-mortar bank and compare them against your local credit unions, along with investigating offers from online lenders.

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The Pros And Cons Of Short-Term Personal Loans

As easy as it may sound to get a short-term personal loan, there are some significant considerations to take into account before inking a contractual agreement that could determine your financial security. Let’s review some pros and cons of short-term personal loans:


  • Easier to qualify: While larger-sum loans require good to excellent credit scores to qualify, a bad credit history isn’t an automatic disqualification for short-term lending.
  • Fast payout: You could be approved and receive your loan in your bank account by the next business day, depending on the lender you choose. When it comes to paying off medical debt or consolidating debt altogether, you can experience relief fairly quickly.
  • Repayment options: Short-term personal loans have more flexible and varied repayment options, so it’s important to payclose attention to the terms and conditions. The biggest pro of repaying a small loan is that you’ll be debt-free sooner rather than later.


  • Steep penalties: To avoid staggering late fees and entering a never-ending debt cycle, it’s vital that you read the terms and conditions carefully. Be certain that you can pay back the loan sum on time.
  • Higher interest rates and fees: Generally speaking, a higher interest rate will accompany a shorter-term loan and smaller loan amount. For example, the average interest rate on a mortgage is 3% – 84% with terms between 10 and 30 years. The average interest rate on a personal loan is 6% – 36%. Rates and fees are especially high for payday loans and other more predatory lending products.
  • Doesn’t build credit: Taking out a short-term personal loan likely won’t build your credit. In fact, if you miss a payment or fail to repay your loan by the end of the term, it will damage your credit. Most short-term loans also use a hard inquiry when you officially apply that can temporarily impact your credit score, although your score will typically bounce back.
  • You could fall into a debt cycle: One of the most common issues that short-term borrowers may face is a never-ending cycle of debt, which often makes their initial debt worse. This is because the underlying cause of their debt goes unaddressed, which can leave borrowers feeling trapped and out of control.

Short-Term Personal Loan Alternatives

Short-term personal loans can be a convenient way to get money fast. But that convenience is easily balanced, or even outweighed, by the risks of defaulting on the loan. If something unexpected happens and you can use an emergency fund or credit card, that’s likely the better option. That said, if your source of income is in jeopardy because of an emergency car repair and something else happens along the way, a short-term loan can become your lifeline.

If you’re considering a short-term personal loan but aren’t confident that it’s the right choice for you, here are several alternative options you can utilize:

  • Friends and family: If you’re strapped for cash and in need of temporary financial assistance, consider asking your friends or family to borrow a short-term loan. Be sure to address repayment expectations upfront to avoid straining a relationship.
  • Home equity: Tapping into the equity in your home can be a wise financial decision for borrowing money in the short term. You can utilize either a home equity loan or home equity line of credit (HELOC) to acquire the funds you need.
  • Traditional personal loans: If you need a loan in the thousands of dollars, rather than hundreds, a traditional personal loan may be your best option. And the longer the loan term, the more competitive your interest rates are likely to be. You also have the option to pay off a personal loan early, if you’re financially abl That way you can take advantage of a longer term’s competitive rates while still quickly repaying the loan. Rocket LoansSM offers personal loans with terms from 36 – 60 months so you’re sure to find a term that fits your needs.

Final Thoughts

Although a short-term personal loan may seem like a great way to access cash quickly in your time of need, it’s important to consider the benefits and risks associated with this type of borrowing. While a short-term loan may provide temporary help, it could put you in a worse financial situation for the future.

If you’ve decided a short-term loan isn’t right for you, consider applying for a longer-term personal loan, which can offer you lower rates and a lengthier payback time.

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