Short term loans are a type of personal loan that provides quick financial help for a short period, usually weeks to a few months. These loans are good for people with any credit history, including bad credit as they have lower minimum credit score requirement compared to traditional lenders. Short term personal loans can be offered by credit unions, online lenders and other short term loan lenders.

Features

• Fast Loan Approval. Short term loans have fast loan approval, good for those who need funds urgently. Many lenders, including online lenders and traditional lenders offer expedited processing for short term personal loans.

• Flexible Credit Requirements. These loans cater to any credit history. Good credit can improve terms but bad credit borrowers can still qualify as the minimum credit score requirement is lower. Some lenders may do a soft credit check which does not affect the credit score to evaluate the credit report.

• High Origination Fees. Short term loans have higher origination fees compared to long term loans. These fees, often called loan origination fees, are charged upfront and can add up to the overall cost of the loan.

• Fixed Monthly Payments. Borrowers repay short term loans in fixed monthly payments. This is good for managing monthly expenses but the repayment period is short so the monthly payment is higher.

Pros and Cons

Pros

1. Fast Access to Funds. Short term loans provide fast access to loan funds, good for emergencies. Many short term lenders, including online lenders can approve and disburse funds within a day.

2. Flexible Credit Requirements. These loans have lenient credit requirements, good for those with low credit score or bad credit. Unsecured personal loans and small personal loans are available to any credit history.

3. Fixed Payments. Short term personal loans have fixed payments, good for managing monthly expenses. This is good for budgeting and financial planning.

Cons

1. High Origination Fees. Short term loans have high origination fees which can add to the overall cost of the loan. These loan origination fees are charged upfront and can be big.

2. High Interest Rates. Interest rates of short term loans like payday loans and cash advances are very high. These high interest rates can be financially draining over the loan term.

3. Prepayment Penalties. Some short term loans may have prepayment fees or prepayment penalties for paying the loan early. These additional charges can be costly for borrowers who want to pay off the loan ahead of schedule.

How to Apply for a Short Term Loan?

1. Choose A Payday Lender. Select a reputable payday lender, online or physical location, that complies with state laws and federal regulations.

2. Prepare Required Documents. Gather necessary documents such as pay stub, social security number, bank account information and proof of income.

3. Complete The Application. Fill out the payday loan application form with personal details, employment information and loan amount. Submit online or in person.

4. Review The Payday Loan Agreement. Review the payday loan agreement carefully, interest rates, fees, repayment terms and due date.

5. Get Loan Proceeds. Once approved, get the loan proceeds directly to your bank account or prepaid card account, usually on the same business day.

Requirements

According to the U.S. government’s Consumer Financial Protection Bureau (CFPB), to qualify for a loan, most payday lenders require:

1. Age. Applicant must be at least the age of majority, which is 18 in most states, some states require 19 or 21 years old.

2. Active Checking Account. A valid and active bank account for the deposit of loan proceeds and for the lender to withdraw repayments.

3. Proof Of Income. Borrower must show proof of regular income, such as pay stubs, to prove they can repay the loan.

4. Valid ID. Borrower must present valid ID, which is usually a social security number, to verify their identity.

How to Get the Money

1. Direct Deposit. The most common is a direct deposit into your bank account. Once your payday loan application is approved, the payday lender will deposit the loan proceeds into your active checking account, usually on the same business day.

2. Prepaid Debit Card. Some payday lenders offer to load the borrowed amount onto a prepaid card account. This is good for those who don’t want to use their bank account.

3. Cash. In some cases, especially with in-person payday lenders, you can get the borrowed amount in cash. But this is less common than direct deposit or prepaid card.

4. Check. A few payday lenders may give you a check for the loan amount which you can then cash or deposit into your bank account.

Payday Loan Rates

Payday loan rates usually involves fees of $10 to $30 per $100 borrowed, depending on state laws and borrowing limits. The average fee is $15 per $100 borrowed which translates to an annual percentage rate (APR) of around 400% for a 2 week loan. For example, if you borrow $300, you would need to pay back around $345 by next payday. These rates are much higher than other types of loans such as personal loans or secured personal loans.

Payday lending is allowed in 37 states, 11 states including Connecticut, Maryland and New York have strict regulations or interest rate caps that limit or prohibit payday lending. Some states like Arkansas and North Carolina have repealed their payday lending laws and others like the District of Columbia have banned it altogether.

18 states and the District of Columbia have usury rate caps, often at 36% APR, to curb high cost payday lending. States like Nebraska, Hawaii, Illinois and New Mexico have recently passed such caps, which is a growing trend to regulate payday loan rates.

The highest payday loan rates are in states like Texas (662%), Missouri (652%) and Delaware (639%). On the other hand, states like Oregon (140%), Maine (228%) and Iowa (247%) have lower rates. Some states like Washington and Virginia have additional regulations to limit the number of payday loans or extend the repayment period to prevent debt traps.

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