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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 click that button to submit your application, find out what you can expect to happen and when, what you will be charged and how, and if a short term loan is the right option for you.
Short-term loans are, as the name suggests, short-term credit solutions designed to cover you until your next payday. They are for small amounts, usually between $50 and $1,000, and are usually repaid within 30 days.
Because they are 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, you’ll find that the interest rates, terms and laws vary considerably between states.
The process of applying, being approved for and receiving a short-term loan will depend on the state you reside in and the lender you are applying with. The typical process you can expect, however, is outlined below.
Check the websites of any providers you’re interested in to confirm they operate in your state of residence.
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 needing to visit a physical location. You can find lenders that don’t require you to fax any documents over and that can direct 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. Just bring along the required documentation and you can have your approved loan within the hour.|
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, so your ability to apply for one will depend on the state you reside in.
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.
When you apply for a short-term loan you can expect any or all of the following to come with your loan:
Short-term lenders are notoriously more costly than other forms of credit. They continue to be applied for, 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. You can expect terms of anywhere between 10 and 30 days, although sometimes longer terms are offered. The turnaround time is also much quicker with short-term loans, as you can access your approved funds in one to two business days at the latest, or sometimes in as little as 15 minutes of being approved.
Eligibility criteria differs between lenders and states, but the following minimum criteria will typically need to be met:
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.|
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:
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:
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?
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