Best Short Term Loans

What is a short term loan?

A short term loan is designed to be repaid within a short period and requires little to no collateral. These loans let you borrow a small amount of money for something that you need cash for quickly.

These loans can be used for almost anything, but common reasons to take out a short term loan include:

• Unexpected bills or expenses (such as medical expenses)
• Helping cover the cost of big-ticket items (such as wedding or funeral expenses, home renovations, school fees)
• Property bonds and moving costs
• Covering a dip in cashflow or a change in your financial situation

You repay the debt with fees in equal repayments over a fixed term that you’ve agreed on (usually somewhere between 3 to 12 months depending on the loan amount).

Should I get a short term loan?

Short term loans should only be used in the case of financial emergencies, and should not be considered as a long-term solution to any financial problems. They’re typically expensive, and come with high fees and charges.

Because short term loans are so costly, you should avoid taking them to use for:

• Basic necessities
• Repaying existing debts
• Holidays
• Non-essential expenses or expenses that can wait

What are the risks of short term loans?

You should be aware of the risks of short term loans before deciding whether or not to take one out.

• They incur high costs. Short term loans have very high fees (this can be up to a 20% establishment fee of the loan amount and a monthly fee of up to 4%), which means high annual interest rates. Fees and charges are sometimes not advertised clearly too, so if you miss the small print, you may be charged fees you can’t afford.
• Repayments are made by direct debit. This means that a lender can withdraw repayments before you pay for necessities like food or rent, which can make budgeting more difficult.
• It may affect your credit rating. If you cannot repay the loan, your credit rating may be affected.
• They have high default fees. If you default (you fail to repay the funds by the due date) you’ll typically be charged default fees that are added to the amount you owe. Borrowers are penalised heavily for missing payments, and default fees can be more than the amount you borrowed.
• They can lead to more debt. Many people who take out short term loans experience financial hardship, and given how expensive payday loans are, they could lead to more debt if you can’t make repayments.
• There are many disreputable lenders. Check that the lender is registered with ASIC and is easy to contact. Read reviews to see what their other customers have had to say about them.
• They have short terms. As the name suggests, short term loans don’t allow you much time to repay the loan. They also typically have pretty inflexible loan terms, with some lenders requiring you repay the loan when you get your next paycheck.

Alternatives to short term loans

• The National Debt Hotline (1800 007 007) provides free, independent financial counselling to Australians dealing with debt and financial problems. They can point you to services that can help you out.
• Talk to your electricity, gas, phone, or water provider and work out a payment plan with them.
• If you’re on government benefits, ask if you can receive an advance from Centrelink (13 17 94).
• If you’re a low income earner or have a Health Care Card or Pension Card, you may be able to access the No Interest Loan Scheme (more info can be found on the Good Shepherd website).

Am I eligible for a short term loan?

The eligibility criteria for short term loans will differ depending on the lender, but you’ll typically have to:

• be over the age of 18
• be an Australian citizen or permanent resident
• be able to provide identification, such as a driver’s licence or passport
• be able to provide a 90 day bank statement
• be earning regular income in the last 90 days (if you’re on government benefits, some lenders will have requirements on how much of your income can be from Centrelink)

Lenders will generally require you to have an active email address and mobile phone number, and may also ask you why you need the loan.

How to compare short term loans

When comparing loans, it’s important to keep your financial situation in mind so that you can find a loan that helps you save money. Reading reviews of short term loan providers can also help give you a better idea of things like the application process, fees, turnaround, customer support, and more.

Consider the following when comparing loans:

Loan term

The loan term is the length of the loan. Shorter loan terms usually have lower fees and rates, while longer loan terms will have lower repayments and generally higher fees.

A loan provider will have a minimum loan term (which can be anywhere from a few weeks to around 3 months) and a maximum loan term (for short term loans, this is often 12 months). The minimum loan term may also be dependent on the payment frequency.

Loan amount

A loan provider will usually have a minimum loan amount and a maximum loan amount. For short term loans, lenders usually have a minimum loan amount of $50 and a maximum loan amount of up to $2000, although some lenders let you borrow up to $10,000.

The amount you’re approved for can depend on factors like your income, credit history, the loan amount you’ve requested, and your ability to repay the loan.

Interest rates, fees, and charges

Interest rates on short term loans are often very high, which is why you should have a solid plan to pay back the loan within its terms, as there will also likely be high late fees.

Some fees to look out for include:

• Application fee: charged when you apply for a loan.
• Establishment fee: this is charged when the loan is established and the funds are issued.
• Monthly fee: a monthly fee is charged every month and covers the cost of maintaining your loan. It does not go towards repaying your loan principal.
• Early repayment fee: charged if you make an early repayment, as lenders are looking to cover the loss of interest you’ll pay. There are plenty of short term loan providers who do not charge an early repayment fee.

Repayments

Your loan repayments will typically be weekly, fortnightly, or monthly. Before you apply for a loan, you should calculate the cost of your repayments to figure out whether you’ll be able to budget for them. Some lenders will let you make early repayments, which can help you pay less interest over the course of your loan.

Secured vs unsecured short term loans

Most short term loans are unsecured, which means that they don’t require any collateral. This means that it’s possible to get a short term loan regardless of your credit history.

Turnaround

If you need cash quickly, you should consider how long a provider will take to deposit the funds into your bank account. Some lenders can issue funds in as little as 30 minutes to a few hours, while others may take a few days.

Physical branches typically have a quicker turnaround, however you should check if this is actually the case with a provider first.

Application process

Many short term loan providers have a 100% online application process that they say can be completed in as little as 5 to 10 minutes. Some lenders also have brick and mortar branches if you prefer to speak to someone and do paperwork in person.

Loan extensions

Some providers can extend your loan term, usually by 90 days. While extending your loan may seem like an attractive option, it will also come with extra fees and may come with extra terms and conditions, so avoid it if possible or continue with caution if you really need the extension.