How Do Short Term Personal Loans Work?

Michael Collins
Dec 14, 2020

A short-term personal loan is technically a loan that is repaid within a year. However, the majority of short-term personal loans are small loans that are repaid within a matter of weeks.

Short Term Personal Loan

Do you hate the feeling of having debt hanging over you? So does everyone else! No one likes having debt. Debt can be extremely stressful to pay off and it can be overwhelming trying to manage multiple types of debt, like your car payments and credit cards. However, debt might not be something that you can necessarily avoid. Accidents, emergencies, and other unexpected expenses can catch you off guard and you may need to take out debt to cover the costs. If you are someone who likes to pay their debt off as soon as possible, a short-term personal loan is a great way to have access to money without needing to have your payments looming over you for a long time. 

What is a Short Term Personal Loan

A short-term personal loan is a loan that is repaid over the course of a year at the most. Short-term personal loans can be used for a variety of purposes and can range from $25 to a few hundred dollars, to thousands of dollars. Typically, short-term personal loans tend to be for less money and are paid back much sooner than a year, usually over the course of a few weeks or months. 

A short-term personal loan will tend to be an unsecured loan. This means that you will not need to put up collateral for the loan. For example, if you got a secured auto loan you would need to put your car up for collateral. If you got an unsecured auto loan you would not need to. If you defaulted on your unsecured loan, you would not lose your car like you would for a secured auto loan. This can be a positive and a negative. Not having to put up collateral can be very helpful and make loans safer for customers, but they may result in higher interest rates on your loan. 

The type of personal loan will depend on how much money you need, and what your creditworthiness looks like. Institutions like banks and credit unions are usually the lenders that offer larger personal loans that are paid back over a longer period of time. These loans will have very rigid repayment terms and will likely be harder to get approved. Banks and credit unions like to see their borrowers have very high credit scores and overall good creditworthiness. Other lenders like online lenders will vary much more in loan size and repayment terms, such as an unsecured personal loan. Generally, these loans will have less strict standards for borrowers when it comes to credit scores and credit history. Lastly, lenders like payday loan lenders will offer small loans up to about $500. These loans are generally repaid in one week or so and are widely available to people with poor credit. Their interest rates can be very high and many of the lenders are untrustworthy.

Can I Get a Short Term Loan with Bad Credit? 

Yes, you can get a short-term loan if you have bad credit. In reality, short-term loans are some of the most common loans for bad credit and may even be the only loan you can get with bad credit. However, keep in mind that not every short-term loan lender will approve your loan even if you have bad credit. 

Again, lenders like banks and credit unions will likely not approve your loan if you have bad credit. Institutions like these have very strict qualifications for their lenders. A lower credit score means higher risk for banks and credit unions, which are arguably the most risk-averse institutions. Because they tend to avoid risks, they will have higher thresholds that borrowers must meet to get their loans. If you have bad credit, you can pretty well assume you will not be able to get a short-term personal loan at a bank or credit union. 

Like we mentioned earlier, short-term lenders like payday loan lenders offer loans for people with bad credit. If you have bad credit, lenders like these are some of the only few lenders that you may be able to borrow from. You will likely not have access to larger loans and will have to settle for loans around or smaller than $500. Since these lenders offer small, short-term loans, they are willing to take risks with their borrowers. As such,  they allow borrowers to get their loans if they have bad credit. However, this also means that these loans will have higher interest rates and can make your weekly or monthly payments relatively expensive. Also, while some short-term lenders like Possible have loans that can build your credit when you pay them back, the majority of these short-term loans build zero fugure value for you and can even put you further into debt at the same time. 

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How does a Short Term Loan Work

Short-term loans work by lenders approving your loan application and then coming to an agreement on loan terms with the borrower. Once this is settled, the loan must be repaid by the borrower exactly how the loan terms laid it out to be. If you are a borrower and your loan terms write that your loan will be repaid in 2 weeks, you need to pay it back in that time frame or you may find additional fees tacked on or your credit score has taken a huge knock. 

As a borrower, the short term loan process looks like this:

  1. You apply for your loan: If you are getting a short term loan from a bank or credit union, it is good to go to the brick and mortar store to apply for your loan. If you are applying for a loan from an online lender, there is no need to leave the comfort of your home. To be able to apply, make sure you are over the age of 18, have some identification to prove your identity, and have a consistent stream of income
  2. Your lender does a credit check: Before your loan application is approved, your potential lender will do a series of checks to ensure that they can trust you with their money. They may check your credit score, check your credit report, and see your recent pay stubs. If they are satisfied, you will receive a loan offer.
  3. You get a loan offer: If your lender approves your application, you will be given a loan offer with the terms and conditions of your loan. This loan offer will include the interest rate for your loan as well as a repayment term. As mentioned above, don't be surprised if the loan offer has a high interest rate.
  4. You accept the offer: Once you accept the offer, your lender will send you your loan amount as a direct deposit. This may not be instant, and can take around 24 hours to go into your bank account. You can then spend the money as you see fit and begin paying your loan back. 

Types of Short Term Personal Loans

Like we have mentioned, there are many types of short-term loans that vary in loan amount, the time you need to pay them back in, interest rate, and credit you need to get the loan. Here are some of the more common types of short-term personal loans. 

  • Banks, credit unions, online lenders: Loans from these types of lenders will vary, but will generally be for larger amounts. Banks and credit unions for the most part will not waste their time and energy giving out extremely small loan amounts. Again, these loans will require the lender to have a higher credit score. 
  • Payday Loans: These loans will usually be no more than $500 and are paid back faster than loans from banks and credit unions. The APR (Annual Percentage Rate) on these loans will also be much higher. You can get these loans from brick and mortar stores as well as payday lenders that offer them online as well. 
  • Credit Cards: While they aren’t loans by definition, they operate very similarly. Credit cards and other lines of credit allow you to spend money and be able to pay it back at a later date. The interest rates on these credit cards vary greatly, but they are all generally paid back every month and can thus serve as an alternative to a short term loan.
  • Cash Advances: Cash advances may not technically be considered loans like credit cards, but they are very similar to a short term payday loan. They generally are given out by credit card companies, and you can collect your cash from ATMs or banks. Like payday loans, you pay them back within the next week or two after you got the cash advance. 

Pros and Cons of Short Term Personal Loans

There are so many types of short-term loans and so many lenders that offer them, that it can be difficult to know if you should get one or not. To make your decision easier for you, we compiled some of the advantages and disadvantages with short-term loans. Here they are.


  • Fast: If you are in need of money for an emergency or for an unexpected expense, you are likely able to get the money you need faster if you get a short term personal loan. While lenders like banks may not get you your money extremely fast, lenders like Possible can have your loan request approved within the hour, right within the app. 
  • No collateral: Again, the majority of these loans are unsecured loans. You do not need to put anything up for collateral for the loan, so you are at no risk for losing any possession that is extremely valuable to you. This makes getting these short term loans safer than if it was a secured loan. 
  • No long-term repayment: There are loans that can be as long as 15-30 years, depending on the loan. With a short term loan, you will not be making payments every week or month for multiple years. Instead, you can complete your loan within a year at the most, and your debt will not be looming over you any longer.
  • Can get with bad credit, and may boost credit too: While it is very rare for lenders to offer loans to people with bad credit that help to build their creditworthiness, Possible does. This can be helpful because it not only allows you to get the cash you need if you have bad credit, but it also helps to improve your score simultaneously. 


  • High interest rates: Compared to longer loans, short term personal loans tend to have higher interest rates, which can make your loan more expensive than it otherwise would have been. Since you have fewer payments, your monthly or weekly installment can get expensive and may be difficult to pay back. 
  • Could put you further into debt: While banks, credit unions, and established online lenders are very trustworthy, the payday loan industry is known to have very predatory practices against their customers. Payday loan companies have long gotten into trouble for trying to keep their borrowers in debt so they keep getting loans. This puts borrowers into payday debt trap cycles and has even caused payday loans to get outright banned in some states. If you are looking for a smaller loan, avoid payday loan lenders and stick with a payday alternative, like Possible 

Best Short Term Personal Loan: Possible

Here at Possible, we feel like we have created the perfect product for people who need money and need to boost their credit score. We have created a short-term loan that is much easier to pay back than traditional payday loans, and is cheaper as well. 

Our loans can be up to $500. They are paid back over four equal installments. If you are struggling to make a payment with our loan, you can push back your loan payment up to 29 days, right within our app. We offer our loans to those with poor credit, and you can have  your money within the hour after it is approved, or even sooner! Our APR is extremely competitive, which will result in you paying less money than you would with other lenders, especially payday lenders. In addition, the fees are all upfront and transparent, unlike the subscription fees, tips, and other charges many payday advance apps might have.

We understand that the world is not fair. We truly feel for the people who have been consistently taken advantage of by financial institutions, and are left with a poor credit score and nowhere to turn but payday lenders. We built Possible to fight these financial injustices. We seek to build value for our customers by providing them with a product that builds credit for them so they can get back on their feet. 
If you would like to get a short-term personal loan with Possible, download our app today and get started!

Michael Collins

Michael has a passion for writing and brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college have allowed him to be on the forefront of business knowledge so he can better inform his readers.

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