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 almost anything. Short term loans are commonly used by small business owners or individuals who may not qualify for a traditional loan. People who want to save money on interest rates — like when buying 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. If you're looking for fast cash and this sounds like the loan option for you, read on.

Potential options for short term loans

If you need quick cash, there are some great short term loan options to consider, including:

  1. Open a credit card
  2. Get a loan online
  3. Visit your local bank or credit union
  4. Ask friends or family members for help
  5. Borrow from your life insurance policy or retirement

1. Open a credit card: While most people don’t think of credit cards as loans, you’re technically borrowing quick cash from the credit card lender every time you make a purchase. You may also find it easier to open up a new line of credit than qualifying for a personal loan. If you’re able to pay your credit card debt quickly, you can avoid the high-interest rates.

If you have bad credit and you're in a bind, you may want to consider opening a balance transfer credit card with a 0% APR (just make sure you pay off the balance completely by the time the introductory period expires). Use Credible's free online tools to compare credit cards currently available and find a balance transfer option that meets your criteria without affecting your credit score.

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2. Get a loan online: There are hundreds of online loan lenders 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.

Browse different types of loans and terms that meet your criteria. Credible can show you personal loan rates from 4.99% APR in just two minutes without affecting your credit score. All you have to do is enter your desired personal loan amount into their free comparison tool.

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The personal loan application process should be simple and quick (especially if you have an excellent credit score). In fact, with some online lenders, you can get a response within one business day.

Loan amounts, rates, lengths and fees can vary by lender, so make sure you do your homework before committing to an online lender. Use Credible’s personal loan calculator to see your estimated monthly payments. You can also visit Credible's personal loan hub to learn more about the application process, loan rates and beyond.

Before working with an online lender, 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 short term lenders who have very lax requirements will likely charge a lot of money for their services.

3. Visit your local credit union or bank: 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. Just note most banks will have a minimum credit score requirement (if you want to improve your credit score follow these easy steps).

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.

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4. Ask friends or family members for help: 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.

5. Borrow from your 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.

CAN YOU BORROW FROM AN IRA WITHOUT PENALTY? 

How to choose a short term loan

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 short term 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 short term lenders.

Remember: A bank, credit union, or online lender can help you get a short-term loan, and if your credit score is good you may find it easier to qualify. Use Credible to guide you through the online loan application process and find out what loan rates are currently available.