How Do Short Term Loans Work?

Payday and other short term loans are commonly subject to reviews in their regulatory statuses, but overall, they are available to most consumers that need them.

Short-term loans, in particular, are popular loans as they can be borrowed relatively fast and repaid over a shorter period of time. By consequence, consumers may be able to then become debt-free quicker all while paying for unexpected and temporary costs. 

What is a Short Term Loan?

Like any other type of loan, short-term loans can be applied for either online or in-person at an in-store lender. The rules around short-term lending vary by state, so, how much you can borrow and how long for will depend on where the consumer lives in the USA. For example, payday loans in Texas are permitted with fairly relaxed regulations, whereas people in Montana are unable to access such short-term funding, as is the case in other states like New York. 

In terms of how short-term loans are applied for, most lenders or loan matching services will require applicants to meet strict eligibility criteria. Therefore, consumers will need to be of legal age (18 years old generally), in some form of employment, be a permanent resident of a certain state (where they're applying) as well as able to provide other personal and financial details (such as their income, address etc.). 

Once applicants are then approved, they can then borrow money for a short period of time. Short-term loans are typically borrowed for less than a year, meaning they will be repaid by a set date and in an agreed instalment with the lender. 

Failure to repay a loan may lead to late payment fees and further interest. Hence, short-term loans are not viable solutions for long-term financial problems. 

Types of Short-Term Loans

Now, what types of short-term loans are there? Well, there are various short-term loans available and advertized throughout the US and which are available to you will depend on the state you live in. However, below you can find some of the most common short-term loans:

• Payday Loans: As the name suggests, these loans can help tide people over until their next paycheck. Suitable for financial emergencies, however, applicants usually cannot borrow large amounts of money. 
• Instalment Loans: Sometimes a more suitable option to payday loans, these can be borrowed and then repaid over a set period of time. For example, in 3, 6 or 9 months which can make the loan repayments more manageable. 
• Cash Advance Loans: These loans are designed to help borrowers get the cash they need in advance of their paycheck from their employer. Although a cash advance loan is similar to a payday loan in how it works, there may be some differences in the terms and conditions of the loan, such is its bespoke nature.
• Title Loans: A loan secured against a borrower's car title. Once the loan is repaid, the title is then handed back to you. These may be a good option for those with bad credit that want to secure a loan. 
• Bad Credit Loans: Some lenders offer specialized short-term loans for those with bad credit. Be cautious of any lenders offering bad credit loans with instant approval, these will often be predatory in nature with unfair rates. 

There are also many other short-term loans people can use, such as cash advances from an employer or even an overdraft with your bank. Which short-term loan suits you best will depend on your current financial situation, alongside how much you'd like to borrow, how long for and your current credit rating.

However, that's not to say those with a bad credit score or poor financial history can't not find the right short-term loan. Some direct lenders across the US offer bespoke loan products which can help people access short-term loans. 

All in all, short-term loans are viable options for those that need to find extra funding quick.