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Short Terms Loans Explained

Short-term loans range from $100 to $2,000 and can be paid back in as little as 16 days to a year. Depending on the lender, the turnaround time for a short-term loan ranges from 6 hours to 48 hours.

Here, we will cover the features, benefits, and disadvantages of short-term loans as, well as the costs associated with getting one. We will also tackle the payback period for short-term loans and how you will know that short-term loans are for you.

Short Term Loans: What Do I Need to Know?

A short-term loan is an unsecured loan amounting to $100 up to $2,000. Since regulations prohibit lenders from offering loans with repayments terms less than 15 days, these loans have a minimum repayment term of 16 days up to 12 months. Lenders also offer 60-minute approval for applications completed online, with loan proceeds disbursed within minutes from the approval of the loan for some bank accounts and lenders.

Some of the loan features include:

  • The smaller loan amount and shorter repayment terms
  • Fixed monthly fees and establishment fees: the establishment fee in any short-term loan agreement should not exceed 20% of the loan amount and the monthly fee should not exceed 4%.
  • Online application process: to provide quick cash to borrowers, lenders offer 100% online loan applications through their website or a downloadable app.

To apply, simply go to the lender’s website and fill out the online application form. To be eligible to take out a loan, you need to meet the following criteria:

  • Be at least 18 years old.
  • An Australian citizen or permanent resident.
  • Have proof of identification.
  • Can provide 90 days of bank statements through your bank credentials and internet banking details.
  • You must have a regular income source. If you are getting Centrelink benefits to augment living expenses, it is a requirement that you cannot exceed 50% of your overall income. If you have a bad credit score, you must demonstrate that your financial circumstances are steady and that you can repay the loan.

Lenders such as Sunshine Loans offer same-day loan approval. Some lenders such as Nifty Loans offer a 10-minute loan approval process, with fund release within 60 minutes from the time of final loan approval for loans approved within a certain cutoff period and for borrowers banking with specific institutions.

How to know if a Short Term Loan is For Me?

Short-term loans are for individuals who need quick access to cash to cover emergency needs or to pay for immediate bills. You can get a short-term debt under any circumstance if you:

  • Need to cover emergency bill:

Given the quick turnaround time of approval and fund release for short-term loans, borrowers who need to pay for emergency expenses such as payment for electricity or water provider may take out a short-term loan.

  • Need to bridge income to the next payday:

If you need extra cash before payday for unexpected bills or medical bills, short-term loans with a minimum of a 16-day repayment period are appropriate for you.

  • Need instant cash for unexpected expenses without the need to provide collateral:

If you need instant cash with a quick turnaround time, without the need to surrender any form of security, then short-term loans are for you.

What are the Benefits of a Short Term Loan?

A short-term loan can be beneficial for individuals who are in need of quick cash. The following are the advantages of short-term loans:

  • Quick turnaround time for immediate need:

Most lenders such as Credit24 and Fair Go Finance offer application processes in as fast as six minutes. Funds are also released from 1 to 24 hours if you have an approved application before a certain cut-off time and if the loan is approved within the business hours.

This is an advantage of short-term loans in comparison with secured personal loans and other loans with higher borrowing limits.

  • Online application:

Most short-term loan lenders offer an online application process.

What are the Disadvantages of a Short-Term Loan?

Short-term loans are unfavourable for individuals who cannot pay off loans in a fixed period of time. The following are the disadvantages of taking out short-term loans:

  • Limited loan amount: Most lenders only offer loans up to $2,000 so a short-term loan is not suitable if you need additional funds.
  • High fees for late payment: Default fees and enforcement fees are typically high if you fail to pay your monthly repayment on time. Default fees can go as high as 200% of the loaned amount.

What are the Fees Associated with a Short Term loan?

The maximum fees a responsible lender can charge are fixed by the Australian Securities and Investments Commission. The following are the fees associated with these loans:

  • Establishment fee: a one-time establishment fee should not exceed 20% of the loan amount taken.
  • Monthly fee: The monthly repayment fees should not exceed 4% of the loan amount per month.

Other related fees include default charges, which can go as high as 200% of the borrowed amount, and the enforcement fees incurred by the credit provider to recover the amount you owe under your loan account.

Short-Term Loans vs Other Loans

The comparison interest rate of a short-term loan compared to a traditional personal loan can appear very high. However, the loan is not borrowed over a 12-month + period like most other loans, so the interest rate is not a good indicator of cost. As a short-term loan is borrowed over a much shorter period of time, it is better to look at the total cost of borrowing.

Short-term loans also involve a higher amount of risk for the lender as borrowers are more likely to default on repayments. To cover this risk, the costs of borrowing may be higher.

How Soon Will I Have to Repay my Loan?

A short-term loan can be repaid over a loan term of 16-days to 12 months. The loan term will vary depending on the lender and the amount you wish to borrow. Repayments are usually processed on a weekly, biweekly or monthly basis and are automatically debited from your account. Your loan agreement will outline the repayment frequency and term, so carefully read this before signing to make sure you can afford the repayment schedule.

Where Can I Get a Short Term Loan?

Here are some lenders currently offering short-term loans:

  • Nifty Loans:

Small loans from Nifty range from $500 to $2,000 and have a 12-month repayment term. If you have an NPP-enabled bank account, you can apply online and receive your loan within 60 seconds of approval.

  • Fair Go Finance:

Fair Go Finance offers small amount loans ranging from $300 to $2,000, with an average repayment frequency of 1-12 months. The application process takes about 6 minutes to complete through an online application form.

  • Sunshine Loans:

Sunshine Loans offer short-term loans from $1,000 to $2,000. Loan repayments can be made from 9 to 16 weeks, but no penalty will be imposed on early repayment. Applications are completed online, and funds are sent within the day of the loan approval. If the credit contracts are signed within regular business hours, the funds will be in your bank account the next day. Bank processing delays might cause it to be sent over to the next day.

Alternatively, you can apply through Friendly Finance and reach an entire network of direct lenders through one application. It is super simple to submit your application and you can have a match decision within a couple of minutes. Our service is free to use, we do not perform a credit check and there is no obligation to take out a loan if you are matched with a lender.

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