Many traditional short-term loans offer quick cash in exchange for extremely high interest rates and fees. As an alternative, some people opt for a personal loan.
Personal loans are generally payable in equal monthly installments over an extended period of time. You also have the option to pay off the loan early to free up income in your spending plan and potentially save on interest. However, it can be a costly move if the lender charges a prepayment penalty.
What is a short-term personal loan?
A short-term personal loan is a form of borrowing that requires little to no collateral and typically has a repayment term of one year or even less. In some cases, the repayment period may be only a few weeks or months.
To qualify for these types of loans, you often need to provide proof of employment and a certain monthly salary. You will also need identification documentation, such as a driver’s license or other form of identification. These loans typically do not require collateral and have lower credit requirements than other types of personal loans. As a result, you typically pay higher interest rates to compensate for such lender risks.
What should you do if you want a short-term loan?
Many consumers choose personal loans over other forms of financing because they offer more competitive interest rates and loan terms from one to seven years. The longer the loan term, the more affordable the monthly payment, making it easier to stay on track and maintain your credit score.
However, the cost savings in the short term also means that you will spend more on interest in the long term. To illustrate, if you get a three-year $5,000 loan with an interest rate of 9 percent, you will pay $159 per month and $5,723.95 over the life of the loan. But if you accept a two-year term, your monthly payment will increase to $228, but you’ll only pay $5,482.17 for the life of the loan.
If you prefer to save on interest, you can opt for a personal loan with a shorter term. Or you can take out a longer term loan to get a lower monthly payment that won’t stretch your budget, and pay it off sooner. However, it is crucial that you choose a lender that will allow you to pay off the loan before the term expires without having to pay a penalty.
How to compare short term personal loans
When shopping for short-term personal loans, it’s important to look at all the fees and terms of each lender side by side and understand what the total costs will be.
It’s important to ensure that a loan not only works comfortably within your monthly budget, but also offers terms that make sense for your financial situation and needs. This should include finding a loan that doesn’t charge exorbitant late fees or prepayment penalties. Some of the specific items you can compare side by side include:
- Origination fees
- Interest rates
- Fines for prepayment
- Refund timeline
- Monthly payment amount
Online personal loan lenders with no prepayment penalties
If you’re looking for a short-term loan, it’s best to consider only lenders who don’t penalize borrowers who want to repay before the loan term ends. Otherwise, you will have to pay fees to close the loan within your desired time frame. Fortunately, several lenders do not charge any fees for paying off your loan early.
| Lender | Amount of the loan | Conditions | APR range |
|---|---|---|---|
| Happy money | $5,000 – $40,000 | 2 to 5 years | 11.72% – 17.99% |
| LightStream | $5,000 – $100,000 | 2 to 7 years | 7.49% – 25.49%* with AutoPay |
| SoFi | $5,000 – $100,000 | 2 to 7 years | 8.99% – 29.49% with AutoPay |
| Upstart | $1,000 – $50,000 | 3 to 5 years | 7.80% – 35.99% |
Happy money
Happy Money puts customers first with its innovative approach to lending. The personal loans are ideal for consumers looking to consolidate high-interest debt to save money, and borrowers also get exclusive access to various tools to manage their finances more effectively.
While their financing times are a little slower than you’ll find with other online lenders, the minimum credit score requirement is on the lower end. And if you have impeccable credit, you may qualify for a loan with an attractive interest rate.
There are no prepayment penalties or late fees, but fees may apply. The exact amount of the fee is based on your loan amount, term and credit quality.
LightStream
LightStream offers some of the lowest interest rates on personal loans. Although you need a good or excellent credit score and a long credit history to qualify, you can qualify for a flexible loan with no spending restrictions.
If you find a comparable loan product elsewhere with a better rate, LightStream will offer you a rate that is 0.1 percentage points lower. Also keep in mind that shorter loan terms typically come with lower interest rates, meaning it’s in your financial best interest to choose a shorter repayment period.
Same-day financing is available and there are no prepayment penalties or other fees.
SoFi
When you do business with SoFi, you get free access to financial advisors, career resources, and other virtual experiences and events designed to help you take your finances to the next level.
This online lender offers a seamless application experience and you have the option to pay application, origination, late payment, or prepayment fees so you can tailor your payments to your needs. SoFi also allows joint applications if you do not qualify for a personal loan yourself.
Upstart
Upstart is worth considering because it also offers competitive interest rates and fast financing options. Additionally, the lender will look beyond your credit score and examine your education and work history to determine if you are suitable for a personal loan.
If you’re approved for financing, you won’t pay a prepayment penalty if you pay off the loan early. Still, Upstart charges an origination fee of up to 10 percent, along with late payment and returned fees. If you choose to receive paper statements by mail, you will also pay a fee.
Advantages and disadvantages of short-term personal loans
When considering a personal loan, it is always important to think about the pros and cons of borrowing money this way. In the case of short-term personal loans, the benefits can include receiving the money quickly – sometimes within one business day. Many also offer a quick and easy application process. There are plenty of lenders to choose from, allowing you to shop around and find the best loan terms and rates for your needs. There are even options for people with bad credit.
However, many lenders accept lower credit scores, making interest rates high for short-term loans. Many also have high fees for things like late payments and may also charge origination fees.
Alternatives to a personal loan for a short-term loan
A shorter-term personal loan isn’t the only option to get the money you need. Here are some alternatives:
- Credit card: If you have a credit card with available credit, you can use it to meet your short-term financial needs. Make sure you pay back what you spend before the due date to avoid accruing interest on those purchases. Or you can apply for a credit card that offers zero percent annual interest on purchases for a limited time and pay it off before the promotional period ends.
- Car loan: You can borrow up to 50 percent of your car’s market value (if you own it outright) with a car loan. Perfect credit isn’t required, but here’s the catch: you can expect high interest rates and your car will be used as collateral. So this loan product can stretch your budget and you could lose your car if you fall behind on payments.
- Personal loan: These loan products are aimed at consumers with poor credit and should only be used as a last resort as they come with hefty APRS, sometimes as high as 600 percent. When you apply, the lender will request your pay stub and bank information to ensure you are employed and know where to get the money when it comes time to collect it. Most loans are no more than $500 and are due on your next payday.
In short
A personal loan can help you overcome a short financial setback or cover an important expense. When researching your options, make sure the lender doesn’t charge prepayment penalties. Even if you get a longer repayment period with a higher interest rate, your payment will be more affordable and you will have the option to pay off the balance in full early to save interest.
However, if a personal loan is not suitable, there are other options available. Make sure you weigh the pros and cons of each of these options so you can make an informed and intelligent financial decision.
