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How do short-term loans work?

Need a loan to see you through to payday? Find out how they work before you apply.


Editor's choice: OppLoans Installment Loans

  • Easy online application
  • Quick approval
  • Long repayment terms
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Short-term loans, also known as payday loans, offer quick solutions to people who need them. Because of the speedy application process and quick turnaround time, there isn’t a lot of understanding of how the short-term loan process works.

Before you hit that Submit application button, find out what you can expect to happen and when, what charges you’ll see, and if a short-term loan is the right option for you.

What exactly is a short-term loan?

Short-term loans are, as the name suggests, short-term credit solutions designed to cover you until your next payday. They’re for small amounts, usually between $50 and $1,000, and are usually repaid within 30 days.

Because they’re geared toward people with bad credit, interest rates tend to be high. Because of the high interest rates, you could end up paying back double or triple the amount you borrowed in interest and fees. And because they’re regulated at a state level, the interest rates, terms and laws vary considerably between states.

I want to apply for a short-term loan. What process can I expect?

The application and approval process for and receiving a short-term loan will depend on the state where you reside and the lender you’re applying with. The typical process you can expect goes like this:

  1. Compare your options.
    Finding the best loan starts with a comparison – compare rates, fees and features to find the loan that meets your needs.
  2. Submit your application.
    You’ll need to check that you meet the lender’s eligibility criteria, and if you do, submit the personal, financial and employment details that are required. This can often be completed online.
  3. Wait for approval.
    You’ll find out if you’re approved quickly after submitting your application. If you’re approved you’ll be sent a loan contract to agree to.
  4. Receive your loan.
    After signing your contract you can expect to receive your loan in one to two business days, sometimes sooner. The loan will generally be transferred into your bank account, although some lenders give you the option to pick up the cash in-store.
  5. Make your repayments.
    Lenders arrange repayments differently – you may need to sign an ACH authorization so the lender can debit repayments from your account. Another common repayment method is providing a personal check, but this is mainly for lenders with physical branches.

A step-by-step guide to applying for a payday loan

Short-term loans you can apply for

Check the websites of any providers you’re interested in to confirm they operate in your state of residence.

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Name Product Filter Values Loan amount Turnaround time Requirements
Chime SpotMe overdraft
Up to $200
$200 in qualifying direct deposits into a Chime checking account in the last 34 days
OppLoans Installment Loans
$500 to $4,000
1 business day
Direct deposit, Meet minimum income requirements, Live in eligible state
Comes with the option to change your due date so you won’t fall behind on repayments.
CashNetUSA Loan
Varies by state
As fast as same business day
Regular source of income, bank account, US citizen or permanent resident, age of majority in your state
Sign up for its discount program to get access to coupons and deals on everything from dining out to tax services.
Fast5kLoans Short-term Loans Connection Service
$100 to $35,000
As soon as the next business day
Regular source of income, Verifiable bank account, US citizen, Ages 18+
Get connected with multiple lenders you might qualify with — even if you have bad credit.
LendYou Short-term Loans
$100 to $2,500
Same business day to 1 business day
$1,000+ monthly income, direct deposit, US citizen or permanent resident, ages 18+
Get offers from potential lenders in minutes by filling out just one online form.

Compare up to 4 providers

What options do I have for short-term lenders?

If you’re looking to apply for a short-term loan you have a few options when it comes to choosing a lender:

Online short-term lenders.Applying for a loan online is quick and easy, and the whole process can be handled without visiting a physical location. Find lenders that don’t require you to fax any documents and that can directly debit your loan to you within a few hours of approving you.
Direct short-term lenders.These lenders can have both online and physical locations and you apply directly with them for a loan. If you apply online you still might have an option to pick up your approved loan in-store. Find out what direct short-term lenders are available.
Loan matching services.If you’re unsure which lender to apply with you can send your application to a loan matching service. These work with a panel of lenders and match you with a lender that can offer you a loan.
Storefront short-term lenders.Some lenders have extensive branch networks, and if there’s one located near you that’s convenient you can apply in-store. But bring along the required documentation and you can have your approved loan within the hour.

Who can anyone apply for a short-term loan?

While short-term loans are known for their flexible eligibility criteria, they still aren’t available to everyone. While most states have places restrictions on payday lending, other states have banned them altogether. This means your ability to apply for one will depend on the state you live in.

Find out if you can take out a payday loan in your state

New York CIty Payday Loans

I live in New York. What are my options?

If you live in New York, or any state where payday loans are illegal, you still have options if you’re looking for a small loan.

  • Installment loans. These loans are for similar amounts as short-term loans but are repaid over longer terms, or “installments”, and so do not fall under the same regulations. Generally, you can borrow more with an installment loan and the terms can extend up to five years. Compare installment loan options.
  • Credit union loans. Credit unions and other small banks sometimes offer small loans to their existing customers. Salary advances and other loans can be applied for and repaid on your next payday, often for more reasonable rates than offered by short-term lenders.
  • Bank overdraft. If your bank account is in good standing you may be eligible for a small, personal overdraft. Get in contact with your current bank to discuss your eligibility.

Are there any features or benefits of short-term loans?

When you apply for a short-term loan, expect any or all of the following to come with your loan:

  • Easy application. You can usually apply for these loans online and you won’t have to fax any of your documents over. There’s no need to visit any physical locations.
  • Fast turnaround time. If you’re in need of your money quickly, short-term loans generally don’t disappoint. Lenders can have your money to you in one to two business days at the latest, or in as little as a few hours.
  • Compare your options online. There’s a wide range of lenders available and you can compare their fees, features and rates online. Once you find the right lender you can submit your application online.

What are my options for short term loans?How are short-term loans different to other loans and types of credit?

Short-term lenders are notoriously more costly than other forms of credit. They continue to be popular, however, because short-term lenders have more flexible eligibility criteria than other mainstream lenders. This allows people on welfare benefits, with bad credit or on lower incomes to access loans.

Other differences include the repayment terms which tend to be much shorter than for other loans and forms of credit. Expect terms lengths anywhere between 10 and 30 days, although sometimes longer terms are available.

The turnaround time for short-term loans is also much quicker. Get access to your approved funds in one to two business days at the latest, or sometimes in as little as 15 minutes of being approved.

Who’s eligible for a short-term loan?

Eligibility criteria differs between lenders and states, but the following minimum criteria will typically need to be met:

  • Age. Lenders will have a minimum age requirement.
  • Residency. You must be a resident of the US and you will need to show what state you reside in.
  • Income. You may need to meet minimum income requirements or show that you earn a regular income.
  • Employment. Some lenders require you to be employed, and if you’re employed you may need to provide your employer details and where you work.
  • Credit history. The majority of short-term lenders don’t require you to have good credit history in order to apply.

What fees come with short-term loans?

The fees and rate you are offered depends on the state you reside in as well as the lender you apply with. Keep an eye out for the following fees when comparing your loan options:

Annual percentage rate (APR).The rate you are charged depends on the usury laws that apply in your state. While most states have regulations regarding APR, rates in states that are regulated can still reach into the thousandth percentile, and other states have no restrictions at all.
Fees for additional products.Lenders may offer prepaid debit cards along with your short-term loan that can come with a separate set of establishment and ongoing fees, so be sure to check this before agreeing to accept the product.
Rollover fees.If you choose to extend your loan or take out an additional loan with the same lender, you will be charged a fee.
Late payment fees.If you are late in making a payment you can be charged a fee by the lender.
Returned check fees.If you make a payment by check and the payment does not go through or is dishonored by your bank, you will be charged a fee by the lender and your bank.
Bank fees.Any time a payment is dishonored by your bank due to insufficient funds, your bank can charge you a fee.

How do I repay a short-term loan?

There are a few options available when it comes to repaying your loan. Depending on the lender and the type of loan you have applied for, you may be able to use any of the following options to repay your loan:

  • Direct debit repayments. To make repayments this way you will need to provide an ACH authorization so the lender can debit your account. Before you sign the authorization make sure you know what dates the repayments are due to come out so you can be sure to have enough money in your account, and also know how to end the authorization.
  • Post-dated check. This is another repayments option offered by lenders, mostly by those who have physical branches. This method involves you giving the lender a check that it can cash on the day your repayment is due. Remember to still make note of the payment date.

Find out about same day short-term loans.

Are short-term loans a good idea?

This isn’t a question that can be answered on this page. Only you can decide if a short-term loan, or any type of credit, is right for your needs and situation. Before you apply for a short-term loan, you might want to ask yourself the following:

  • Are you eligible for any lower cost loans? Only apply after considering all of your options.
  • Will the repayments be manageable to you? Most lenders outline the APR that will be charged before you apply – work out if this will be manageable on your budget, and only apply for the amount that you need.
  • What are you using the loan for? Short-term loans are not designed to fix longer term financial problems, but rather to help you get by short-term cash flow problems that arise before payday.

Having a good understanding of any credit product is important before you apply. Having read this guide, hopefully you can submit your short-term loan application confident of the process.
How can you find the “best” short-term loan?

Are payday loans available in my state?

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