Best short-term loans: Compare your options

Short-term loans can provide quick funding for individuals who want to cover sudden expenses or may not qualify for a traditional loan. (iStock)

You can use a short-term loan for nearly anything. Whether you need to cover emergency expenses, fund a vacation, or settle some bills until your next paycheck, a short-term loan can provide a quick influx of cash flow when you’re running low. Short-term loans are commonly used by small business owners and individuals who may not otherwise qualify for a traditional loan. Additionally, people who want to save money on interest rates, like when purchasing a car, may opt for a short-term loan.

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The biggest difference between a short-term loan and a traditional loan is the repayment period. Short-term loans have a smaller repayment window, usually between 3 and 18 months, while long-term loans have a repayment period of 24 months or more.

Typically, individuals with a higher credit score are more likely to qualify for long-term loans. Short-term loans are usually less expensive (less time repaying interest) and have lower limits than long-term loans.

Need a short-term loan? Here are your best options

Friends or family members
If you have the option, asking family or friends for a short-term loan is often the most cost-effective. However, bringing money into any relationship can make things tricky, especially if you are unable to make payments or if your lending-friend is reluctant to ask for payments.

One of the simplest options is to visit your local credit union or bank to ask for a short-term loan. Try setting an appointment with a loan counselor in person, and be sure to bring pay stubs and tax statements. If you earn income from a side business, make sure to have the information with you as well. Credit unions are often easier to work with if you’re already a long-term customer.

Your credit union or bank will likely have the best interest rates available, as many offer special promotions to their customers. Make this one of the first places you look if you need a short-term loan.

Note: An alternative option would be to take advantage of overdraft protection. Many credit unions and banks only charge an overdraft fee for each transaction that takes you over your balance. If you can pay back the amount you overdrafted within a few days or a week, this may be a low-cost option. Be mindful that you don’t get into a repeated cycle of overdrafting and repaying your account, as it can be very costly in the long-term.

Credit cards
While most people don’t think of credit cards as loans, you’re technically borrowing money from the credit card lender every time you make a purchase. You may also find it easier to qualify for some credit cards than a loan. If you’re able to pay the balance on your credit card quickly, you can avoid the high-interest rates.

Online lenders
There are hundreds of online companies willing to offer short-term loans. While many companies offer fair interest rates and reasonable fees, there are also many that charge much higher rates than the industry average. Before working with an online company, make sure you read the fine print on their interest rates and repayment terms. It would help if you also looked for customer experiences, so you have an idea of how a company treats its customers.


A few red flags to look for: poor website security, early repayment penalties, interest rate (some online and quick loan lenders charge interest rates of 300 percent or more), and lack of minimum requirements. Most lenders who have very lax requirements will likely charge a lot of money for their services.

Take a loan from a life insurance policy or retirement

An alternative to traditional loan options is to borrow from your life insurance policy or your retirement fund. This option is last on the list for a reason. In most cases, borrowing from either option is never a good idea. If you borrow money from your retirement accounts, you’ll have to pay taxes on the amount you take and an early withdrawal penalty. Worse, you’ll lose any gains you could have earned had you left the money in your 401(k) or IRA.

If you borrow from a whole life policy, you’ll have to repay the amount you borrowed with interest. If you don’t repay the loan, the insurance company will deduct the amount owed from the payout when the policy matures.


Choose your short-term loan wisely

No matter where you choose to get your loan, make sure you compare offers to ensure that you’re getting the best deal. Before applying for a loan, consider the following factors:

  • How much can you afford to borrow?
  • Interest rate
  • Loan origination fee
  • Monthly payment
  • Repayment terms
  • The reputation of the lender

Short-term loans can be a great way to cover yourself in an emergency, but you’ll get the greatest benefit from them if you can repay the loan quickly and if you avoid predatory lenders.

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