The Complete Guide to Short-Term Loans

5 min read
Short-term loans

While it can be easy to qualify for short-term loans—even if you have a low credit score or limited income—many come with unfavorable rates and terms. The high fees and interest rates make it an expensive form of debt, and the short repayment terms can leave borrowers financially worse off. There may be more affordable options. Knowing what a short-term loan is and how it works can help you make an informed decision.  

What Is a Short-Term Loan? 

Typically, installment loans stretch fixed payments out over several years, and borrowers have the option to repay early (sometimes for a fee). The long repayment period means you’ll pay less money each month, which can be beneficial in creating and sticking to a monthly budget.  

Short term loans often must be repaid in a year or less, sometimes in only a few weeks. Because the credit requirements are lower, short-term loans often charge a higher interest rate and may come with other fees and penalties.  

4 Common Types of Short-Term Loans

1. Payday loans 

Payday loans are one of the most well-known types of short-term loans. Payday loans can also be referred to as cash advances, check advances, deferred deposits, or deferred presentment loans.  

Many payday loans require a stable income but do not require good credit. Often, you can receive the funds—minus any applicable fees—the same day. In exchange, you give the lender a post-dated check for the full amount or permission to take a direct debit from your bank account on a predetermined date. Most of these loans are repaid with a single payment within two to four weeks and can carry an annual percentage rate (APR) of nearly 400%. Several states also limit payday loans to $1,000 or less.  

While many payday loans let you extend or “re-up” the loan, you may pay a fee and continue accruing interest. This puts many borrowers into a “debt trap,” continually renewing their payday loans to cover the interest and fees.  

2. Auto title loans 

Auto title or car title loans may be another option for a short-term loan if you have bad credit. Since you are using your car as collateral, the lender may not require a credit check. Like payday loans, you may also receive the funds—minus any applicable fees—the same day.  

However, auto title loans have a short repayment period, sometimes as little as 15 to 30 days. Borrowing this way is also expensive. Many auto title loans carry an average APR of 300%, according to The Federal Trade Commission. And if you default on the loan, the lender can seize your car.  

3. Pawn loans 

Pawnshop loans are another type of short-term secured loan. Like an auto title loan, you’ll hand over a personal possession in exchange for a loan based on the item’s value. To reclaim your property, you’ll need to pay the loan back quickly. Otherwise, the pawnshop can take and sell your item. You may also have to pay interest, fees to set up the loan, and fees to store your items, which can lead to high APRs. 

4. Short-term personal loan 

Some lenders offer short-term personal loans with quick repayment schedules and high-interest rates. Rather than requiring a single payment, like a payday, auto, or pawn loan, you’ll make weekly, biweekly, or monthly payments on a predetermined schedule. 

If the loan has a repayment period of six months or less, some states limit the APR that lenders are allowed to charge to less than 50%, but many states allow more than 100% APR and some states have no cap at all.  

These high-rate, short-term personal loans shouldn’t be confused with other types of personal loans. Many unsecured personal loans have longer repayment terms and lower interest rates, which may give borrowers access to a larger loan with manageable monthly payments.  

Why Get Short-Term Loans 

Most short-term loans are a last resort for borrowers who worry they might not qualify for other types of loans. 

Easy application 

Some people turn to high-rate, short-term loans when they need immediate funds but don’t feel they have the credit or income to qualify for a better loan or line of credit elsewhere.  

However, you may want to consider other lenders before you turn to payday or auto title loans. Each lender sets its own credit and income requirements, and many lenders work with a range of borrowers. You may also be able to see if you pre-qualify without impacting your credit score.  

If you don’t need the funds immediately, you may also consider taking steps to improve your credit. Paying your bills on time, paying down debts, and limiting credit applications can all improve your credit score over time.  

Easy access to funds 

Short-term loans are often advertised as allowing you to complete the entire process online. While this can be true, the implication that only short-term lenders can offer these benefits is a bit of a marketing gimmick. Many lenders, both online marketplaces and traditional brick-and-mortar lenders now allow you to apply online. In many cases, you may be able to apply and have your loan funded entirely online.  

Quick funding in an emergency  

Many short-term lenders offer same or next day funding, which can be appealing if you’re in need of money quickly. But some traditional lenders also offer quick funding. For example, most LendingClub personal loan members are approved within a couple of hours and you could have your money deposited directly into your bank account fast.* 

Pros and Cons of Short-Term Loans 

Short-term loans can be beneficial when you’re in a financial pinch but proceed with caution. Here are some of the major pros and cons.  


You don’t need good credit. 

Many short-term loans don’t require good—or any—credit to get approved.  

You may have access to funds faster.  

The lack of a credit check can increase the approval and funding process, which means you may be able to get the loan the same day you apply. 


APR can be high. 

Lenders often charge high APR, which can make short-term loans an extremely expensive type of debt.  

Can be difficult to repay. 

Because these loans must be repaid quickly, many borrowers are unable to come up with enough money to repay the short-term loans plus interest while managing their monthly expenses. As a result, they might need to take out another loan or pay a fee to extend the first loan, 

May require collateral.

Some short-term loans, such as auto loans, may require collateral. If you default on the loan, you risk losing your property.

Finding the Best Loan for You 

There are a few situations when getting a short-term loan may be your only option, and it could be better than missing an important bill. However, many personal loans don’t require perfect credit and offer fast funding and longer repayment terms, which makes it easier to get out of debt and find financial freedom.  

With LendingClub Bank, you can check your loan rates without impacting your credit score in only a few minutes, so it’s worth checking to see if you qualify before assuming an expensive short-term loan is your only option. 

*Between April 2022 and June 2022, Personal Loans issued by LendingClub Bank were approved within 2 hours, on average. Loan approval, and the time it takes to issue a credit decision, are not guaranteed and individual results vary based on creditworthiness and other factors.

Check Your Rate

You May Also Like

Related Resource Center
Find a loan that not only meets your needs, but one you have a good chance of qualifying for.
Apr 17, 2024
6 min read
Personal Loan Eligibility Criteria You Need to Know Before You Apply
Want to consolidate high-interest debt, renovate your home, or manage an unexpected expense? A personal loan could help.
Sep 25, 2023
7 min read
Top 4 Reasons to Get a Personal Loan
Home repair costs have increased. Knowing upfront what you can expect to pay for certain types of improvements can help you prepare financially and save you a lot of stress.
Aug 28, 2023
8 min read
knowing common home repair costs can help you prepare for the future
It's common to see the buy now, pay later payment option at online checkout — but should you use it? Learn what BNPL is, how it works, and alternatives for borrowing money.
Aug 22, 2023
5 min read
Woman's hands on keyboard of laptop displaying image of shopping cart and buy now, pay later text
Anytime the Federal Reserve decides to raise interest rates, it typically creates a ripple-effect throughout the economy. We take a look at some of the ways rising rates influence how you borrow and spend, and the impact rising rates can have on variable rate debt you may be carrying.
Jul 17, 2023
7 min read
Torso of woman wearing pink sweater sitting at paper-strewn desk with phone in hand and using calculator.
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
While funding issues don’t happen often, it’s possible a loan may not get fully funded.
Jun 7, 2023
less than a minute read
If you're having trouble making your payments, we encourage you to reach out to us before enrolling with a debt settlement company.
Jun 7, 2023
2 min read
Once you submit your application, we may ask you for additional paperwork to verify your information.
Jun 7, 2023
2 min read
Your annual percentage rate (APR) is the overall yearly cost of your loan, including fees and interest. The APR on LendingClub Bank loans ranges from 6.34% to 35.89%.
Jun 7, 2023
less than a minute read
Applying for a lending product is fast, easy, and confidential.
Jun 7, 2023
less than a minute read
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
Sep 6, 2023
4 min read
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read

LendingClub Bank and its affiliates (collectively, "LendingClub") do not offer legal, financial, or other professional advice. The content on this page is for informational or advertising purposes only and is not a substitute for individualized professional advice. LendingClub is not affiliated with or making any representation as to the company(ies), services, and/or products referenced. LendingClub is not responsible for the content of third-party website(s), and links to those sites should not be viewed as an endorsement. By clicking links to third-party website(s), users are leaving LendingClub’s website. LendingClub does not represent any third party, including any website user, who enters into a transaction as a result of visiting a third-party website. Privacy and security policies of third-party websites may differ from those of the LendingClub website.

Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. ​Deposit accounts are subject to approval. Only deposit products are FDIC insured.

“LendingClub” and the “LC” symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.