How long is a short term loan?

how long is a short term loan

Short-term loans generally last a few months or one year, although the repayment period varies per lender. The loan amount for a short-term loan also varies depending on the lender, loan type, and the borrower’s information. 

Are you considering taking out a loan for some financial relief? Lenders offer short and long-term loans to help consumers handle various financial emergencies. But how long is a short-term loan? Learn how short-term loans work and the different options available below! 

What Is a Short-Term Loan?

A short-term loan is a type of loan offered by financial institutions that provides temporary financial relief. Qualification for a short-term loan typically depends on a borrower’s credit score, income, and payment history. However, some lenders still provide short-term loans for people with bad credit (called bad credit loans) if they show proof of their ability to pay on time each month. 

If you’re debating between a short-term vs. long-term loan, know that short-term loans offer smaller loan amounts and shorter repayment terms. If you do not need a considerable amount of money, then this type of loan may be ideal! The repayment period for a short-term loan varies depending on the lender and the type of loan. However, most short-term loans do not last longer than one year. If you want to avoid a long financial commitment, know that you can repay a short-term loan in as little as two weeks! 

A Quick Breakdown

Loan Processing TimeTime taken from application to disbursement of funds.Typically ranges from a few hours to a few days, depending on the lender and loan type.
Eligibility CriteriaRequirements that borrowers must meet to qualify for a short-term loan.Often includes minimum age, proof of income, valid ID, and a checking account.
Loan Extension OptionsPossibility of extending the loan term beyond the original agreement.Some lenders allow extensions, but this may come with additional fees and higher interest rates.
Credit Check RequirementsThe necessity of a credit check during the loan application process.Some short-term loans require a credit check, while others offer options without it.
Online vs. In-PersonAvailability of loan application and management online versus in-person.Many lenders offer online applications, but some may require in-person visits.
Collateral RequirementsNeed for collateral to secure the loan.Most short-term loans are unsecured, but some types may require collateral.
Typical LendersCommon types of institutions or entities that provide short-term loans.Includes payday lenders, online lenders, banks, credit unions, and peer-to-peer lending platforms.
Regulatory ConsiderationsLegal and regulatory aspects that govern short-term loans.Varies by region; includes interest rate caps, permissible fees, and borrower protection laws.
Early Repayment PenaltiesPenalties or fees for paying off the loan earlier than the agreed term.Some lenders charge penalties for early repayment, while others do not.
Loan Renewal PoliciesPolicies regarding the renewal or rollover of loans.Renewal may be possible, often with additional fees and increased interest rates.
Disclaimer: Please note that the information provided in the above data table regarding short-term funding is for general informational purposes only. It is important to conduct your own research and consider your financial situation before making any decisions, as loan terms and conditions can vary significantly between lenders and regions. This table does not constitute financial advice, and we recommend consulting with a financial professional for guidance tailored to your specific circumstances.

What Are the Pros and Cons of Short-Term Loans?

Before you apply for a short-term loan, it’s in your best interest to learn about the pros and cons. Knowing the advantages and disadvantages of short-term loans can help you decide if this type of loan is best for your current financial situation. 

The Pros of Short-Term Personal Loans

These are some of the advantages of borrowing money through a short-term personal loan:

Fewer Interest Fees

One of the best perks about short-term loans is that you save more money than you would with long-term loans! Borrowers usually end up paying fewer interest fees since financial contracts are shorter. The interest rate is the cost you pay to borrow money, so a short repayment length is ideal if you want to keep more money in your bank account.

Lower Interest Rates  

The interest rates are typically lower when you take out a short financial contract. Extended repayment periods are riskier for lenders because there’s a higher chance the borrower may experience economic issues down the line. For this reason, many lenders use higher interest rates to mitigate risk with long-term loans. 

No Long Term Commitments 

Unlike long-term loans, short-term loans do not require a long-lasting commitment. You can quickly repay your short-term personal loan and use that extra money to make no-risk investments or build an emergency fund. While it’s possible to pay off a long-term loan early, some lenders charge prepayment penalty fees to make up for lost interest charges.   

The Cons of Short-Term Loans

Consider the cons carefully before deciding to apply for short-term loans:

Small Loan Amounts

Since borrowers must repay short-term loans quickly, getting a substantial amount of money can be difficult. The loan amount you can get is dependent on your repayment length and credit history. 

Suppose your car gets damaged in an accident, and you need to get a $5,000 loan with bad credit. Getting that much money through a short-term loan will be incredibly challenging. And if you find a lender that provides short loan agreements and high loan amounts, your monthly payment due will be astronomical!

Higher Monthly Payments

A short repayment schedule will result in higher monthly payments. High loan payments can put a strain on your finances. Many borrowers fall behind on payments when the monthly amount is too high. Late payments will decrease your credit score and incur late fees. 

In addition, late payments will remain on a credit report for up to seven years! Negative accounts on credit reports will make it more challenging to get loans in the future. Ensure you can afford the repayment before signing up for a short-term loan. 

What Are Some Short-Term Loan Options?

There are plenty of short-term loans to choose from when you need money immediately. The best short-term loan for your current situation depends on your desired loan amount, credit history, and repayment preferences. 

Payday Loans

A payday loan is a short-term, high-cost loan that provides quick funding to eligible borrowers. Payday loans go by many names, such as payday advances, cash advance loans, and payroll loans. Currently there are 36 states in the U.S. that allow payday loans.1

Payday loans are convenient because the qualification requirements are minimal. You do not typically need good credit to get a payday loan. Most payday lenders ask for proof of repayment and identification. The average loan amount is only $500, and the repayment length is typically between two and four weeks. 

While a payday loan seems like a great idea when you need a few hundred dollars for groceries or upcoming bills, many borrowers end up struggling to repay. Payday loans tend to have very high-interest rates, which can make repayment harder. Unpaid loans will incur a rollover fee and a repayment extension, which can result in a vicious debt cycle. Carefully consider whether you can recover the entire loan amount plus interest fees before the due date.  

Personal Loans

A personal loan is a monthly installment loan that can provide eligible borrowers with a sizable lump sum. Personal loans are unique because consumers can choose between a short or extended repayment length. Depending on the lender, repayment periods can last a few months or years. Approximately 23.2 million people currently have a personal loan.2 

Eligibility for a short-term personal loan typically depends on a borrower’s credit score and income. However, some lenders offer bad credit options for consumers that have a bad credit score. The loan amounts range considerably, as you could apply for a few hundred dollars or several thousand. The amount you can get through a personal loan depends on the lender and your financial background. 

Personal loans offer a lot of advantages, such as decent interest rates, flexible approval requirements, and higher loan amounts. Qualified borrowers can usually get quick cash in their bank account within one business day. However, ensure you ask about fees before applying, as some lenders charge more than others.  

Credit Card Cash Advance

A credit card cash advance is a short-term cash borrowing option for consumers that need money now. You can withdraw cash from an ATM if you have a credit card with an available balance. Consumers without a credit card can apply with a credit card company to get access to a credit line. The amount you are allowed to spend is based on your credit score and income. 

The amount of cash you can withdraw depends on your credit card issuer and your total credit limit. But most credit card companies limit withdrawal amounts to a small percentage of your total credit limit. A credit card cash advance is convenient when you need a couple of hundred dollars in emergency funding. However, withdrawing cash with your credit card can be expensive. 

The APR for a cash advance can be extremely high, much higher than the standard purchase APR. The cash advance APR is applied to the total withdrawal amount. The more money you need, the more you have to pay. In addition, you may have to pay an ATM fee, which is usually a few dollars. Credit card usage affects your credit score more than installment loans. Unfortunately, you can accidentally make your credit score worse by taking out a credit card cash advance. But the benefit is that you do not have to apply for a new loan if you already have a credit card.  

How a Short-Term Personal Loan Can Affect Your Credit

A short-term loan is a great financing option when you need financial relief quickly, but it can affect your credit score. Applying for any loan requires a hard credit check, which can lower your credit by a few points. 

If you get approval for a short-term loan, your payment history will directly affect your credit. Continuous on-time payments can significantly boost your credit rating! Many lenders use FICO scores to make qualifying decisions, and your payment history makes up 35% of your total score. So you can drastically hurt your credit score if you miss a loan payment.

Late loan payments will result in a late fee, which varies per lender, and a decreased score. According to FICO’s credit damage data, a late payment can reduce credit scores by as much as 180 points! But the severity of the late payment will ultimately determine how many points get deducted. When a late payment is more than 30 days late, the lender may report the information to the credit bureau. Late payments will appear on your updated credit report and remain for up to seven years from the original date of the missed payment. 

FAQ: Short-term Funding 

What determines the interest rates on short-term loans?

The interest rates on short-term loans are influenced by factors such as the lender’s policies, market conditions, the borrower’s credit score, and the loan amount. Lenders assess these factors to determine the risk involved and set the interest rate accordingly.

Can a credit union offer better terms for short-term loans compared to banks?

Yes, credit unions often offer better terms for short-term loans compared to traditional banks. Being member-focused, a credit union will typically provide lower interest rates and more flexible repayment terms.

Are merchant cash advances a viable alternative to traditional short-term loans?

Merchant cash advances can be a viable alternative for businesses needing quick funding. They provide an advance based on future credit card sales, but it’s important to note that they usually come with higher costs compared to traditional short-term loans.

How do interest rate loan terms vary between different short-term loan providers?

Interest rate loan terms vary widely among short-term loan providers. Factors like the type of lender, loan amount, repayment period, and the borrower’s creditworthiness contribute to these variations.

What are the typical repayment terms for short-term personal loans?

The typical repayment terms for short-term personal loans range from a few weeks to a year. The exact term depends on the lender and the loan amount.

How do short-term loans impact credit scores differently than long term loans?

Short-term loans can impact credit scores more quickly due to their shorter duration. Timely repayments can positively affect your credit score, while missed payments can have a more immediate negative impact compared to long-term loans.

Can short-term loans be refinanced or consolidated?

Yes, some short-term loans can be refinanced or consolidated, depending on the lender’s policies and the borrower’s creditworthiness. This can help manage repayments more effectively or secure lower interest rates.

What are the risks associated with high-interest short-term loans?

High-interest short-term loans can lead to a debt cycle if not managed properly. The high costs can make it challenging to repay the loan on time, leading to rollovers, additional fees, and a potential negative impact on your credit score.

How to choose between a short-term loan and a credit line?

Choosing between a short-term loan and a credit line depends on your financial needs. A short-term loan is suitable for a one-time expense with a fixed repayment schedule, while a credit line offers flexible access to funds over time, useful for ongoing expenses.

A Word From CreditNinja: Short-Term Loans

A short-term personal loan is beneficial when you need money quickly but don’t want to commit to a long-term financial agreement. The best short-term loan option depends on your repayment preferences and financial need. CreditNinja always encourages you to consider your options carefully and take the time to compare lenders. Accepting the first loan offer you receive without careful consideration may result in issues down the road. Ask lenders about interest rates, fees, and terms before signing on the dotted line to ensure you have a pleasant financing experience.   

Need more resources on finding the perfect loan for you? Check out the CreditNinja dojo for more free financial resources!  


  1. Payday Loan Facts and the CFPB’s Impact | The Pew Charitable Trusts
  2. 10 questions to ask before taking out a personal loan | CNBC
  3. What is a payday loan? │ Consumer Financial Protection Bureau
  4. The Changing Score │Fair Isaac Corporation 
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