What is a short-term loan?

Question

The difference between a short-term loan and a long term-loan is that short term loans typically have to be repaid within a year, whereas a long-term loan can stretch over a period of many years. Short-term loans also tend to have higher interest rates and smaller loan amounts.

Below is a table outlining the key differences between short-term and long-term loans.… read full answer

Differences Between Short-Term and Long-Term Loans

Factors	Short-Term Loan	Long-Term Loan
Repayment Period	Typically one year or less	Can be anywhere from three to 40 years
Interest Rate	Higher interest rates due to short repayment periods	Lower interest rates because more interest will be paid over time
Approval Requirements	Options with low credit requirements	Typically requires higher credit scores and income
Loan Amount	Ranges from a few hundred to a few thousand dollars	Loan amounts as high as $100,000+
Collateral Requirement	Usually do not require any form of collateral	Often require collateral, such as a home, a car or money in a savings account

Ultimately, short-term loans are best if you need money fast, but they can come with high interest rates. Long-term loans are typically best for financing larger purchases over a period of more than a few years.

For more information, check out WalletHub’s picks for the best short-term loans, as well as the best long-term loans. You can then pre-qualify with multiple lenders at once using our free pre-qualification tool.

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Answer 1 · 2021-12-21 15:21:28

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Grace Enfield, Content Writer

@grace_enfield • 12/21/21 This answer was first published on 12/21/21. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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A short-term loan is a type of loan that requires full repayment within a few months to a year. The best short-term loans offer low minimum APRs and a wide range of dollar amounts, and some lenders do not charge an origination fee to get a loan.

However, there are a few types of short-term loans that you should avoid, like payday loans and auto title loans.

Short-Term Personal Loans

Personal loans are your best option if you're looking for a short-term loan. These loans can be used for almost anything, and they have APRs as low as 2.49%, minimum term lengths as short as 6 months and funding as soon as the day you apply.

To see what lenders may approve you and which rates may be available to you, check out the free pre-qualification tool on WalletHub.

Short-Term Business Loans

Short-term business loans are a little different than short-term personal loans. They offer a wide range of loan amounts and have repayment periods of up to 18 months, but they also typically have a higher APR and may require more frequent payments. Some lenders require payments to be made daily or weekly, but the payments are usually smaller than a normal monthly payment.

Short-Term Loans to Avoid

Payday loans

Payday lenders offer very expensive, short-term loans. These loans are usually small ($500 or less), and you have to pay them back within a few weeks. Lenders will typically charge outrageous fees, equivalent to a 400%+ APR.

Auto title loans

Auto title loans are secured by the title of your car - the document that grants you ownership of the vehicle. The lender will give you a portion of the car's value upfront, and you're expected to repay the loan within 15 to 30 days. If you don't repay the loan, you risk losing your car.

Pawnshops

Pawnshops allow you to bring in your items and get a portion of their worth in return. You then have to repay the money with interest within a certain amount of time to get your items back. If you don't repay the loan, the shop will take ownership of the items and sell them.

Ultimately, unlike payday, auto-title, and pawn-shop loans, a short-term personal loan can be great if you have temporary borrowing needs and the ability to repay the loan quickly. If you're ready to start comparing loan offers, check out the top-ranked short-term loans on WalletHub.

What is a short-term loan?

Grace Enfield, Content Writer

Short-Term Personal Loans

Short-Term Business Loans

Short-Term Loans to Avoid

Payday loans

Auto title loans

Pawnshops

2023 Best Short-Term Loans

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