Short-term loans

Meet your immediate emergency cash needs without long-term debt

While all of these lenders have their own range of products and their own unique rates, terms and features they are all regulated by the ASIC (the Australian Securities and Investments Commission).

Consumers are also taken care of by various consumer credit laws and if you’re not happy with a loan or any features relating to that loan you can launch a complaint against the provider.

Understanding short-term loans

Short-term loans can carry loan terms from 16 days to 12 months and cannot offer more than $2,000. These loans can be used for making small purchases, for travel, for tiding you over during a difficult month, for car repairs, for payment services providers and for vet bills.

These short-term loans are also sometimes referred to as payday loans and carry a maximum charge of 20% of the principal as an establishment charge and an ongoing 4% monthly fee.

What are medium-term loans?

Medium-term loans are loans that are between $2,001 and $5,000 and have a loan term that does not exceed 24 months.

These loans can also be used for all the activities described above however, they offer more credit and can also be used for bigger purchases and larger expenses. Medium-term loans have an interest rate cap of 48% per annum with a $400 establishment fee.

Finding Short-term loan brokers

Since the new caps have been introduced on payday and short-term loans many lenders have ceased operations and there are now only a number of companies that offer loans under $2,001.

That being said, most alternative credit providers that operate online do not offer loans directly but rather act as brokers for the handful of direct lenders.

When using a broker you will not have to pay them directly for their services as the lender is responsible for paying them their commission. Never pay any fees upfront to any website or person to arrange or find a loan for you.

Short-term loans are not appropriate for:

• Debt consolidation
• Long-term cash management
• Car Finance

Types of Short-term loan providers

Banks – some banks do offer smaller loan amounts that can be repaid in a short space of time however, they typically offer large personal loans and you must enquire at your particular bank to find out. You can also make use of a credit card or overdraft facility when you’re in need of a little bit of extra cash.

Credit Unions – although credit unions are like banks and typically don’t offer small short-term loans there are a few who do and can offer their members a small personal loan very quickly. You can call or email your credit union to find out if they have a small loan facility available.

Peer-to-peer lenders – if you’re looking for a larger personal loan then you may be able to get it at a low-interest rate from a peer-to-peer loan. There are about 7 lenders in Australia that offer loans to individuals and because they don’t operate from branches their expenses are kept to a minimum meaning that all those savings are passed onto you.

Online lenders – this is the most popular type of short-term loan provider simply because they offer the quickest turnarounds, and the least amount of paperwork and will even consider loans for bad credit. These alternative lenders usually operate online only but may have branches across the country too.

How to compare Short-term loans

Although it used to be very difficult to compare credit products the advent of a range of loan comparison sites has made it easy to find and compare loans. Many of these sites over highly advanced searches will offer you a list of exactly the loans or type of lender that meets your needs.

It’s important to consider:

• The repayment term of the loan
• Whether you meet the minimum criteria for a loan
• If you can afford the monthly repayments
• What the interest rate is and the comparison rate is
• The procedures and penalties on non-payment
• How fast the loan can be paid out
• What documents are required and if you are able to provide these

Short-term loan alternatives

If you need a small loan for a short period of time short-term loans will very likely meet your needs best, however, there are a few alternatives and questions you may want to consider before borrowing.

Do you really need to borrow? Short-term loans have higher interest rates than regular personal loans and other credit types simply because the loan amount is smaller and the loan term is shorter so in order for it to be worth the lender's effort they charge high interest.

You will typically pay quite a hefty sum in the form of interest so if your need isn’t extremely urgent you may want to rather wait or you may want to consider alternative options.

Can you borrow from family and friends? This may be the quickest and easiest way to fill an urgent cash need without having to pay hefty fees and interest.

Can you borrow from your employer? If you need cash to borrow for a short period of time while you wait for your paycheck why not ask your employer to allow you to take an advance on your salary or wages?

Use a credit card or overdraft. Even though using a credit card or overdraft facility will cost you it will almost always be cheaper than using a payday loan or short-term loan to solve your cash needs.

What you need, in order to apply

• 100 points ID
• Driver’s licence
• Proof of address
• 3-month bank statements

You will also have to provide the lender with a completed online loan application form, all your employment details, details on your income and expenses, and your contact information and tell them whether or not you have had any other small loans in the preceding 90 days in which case you may not get another small loan.