Short Term Loans

1. What Are Short Term Loans

Short Term Loans are designed for short term use, typically to pay for emergency expenses. These loans are usually capped at a small loan amount and must be repaid within one year.

Many people in Australia opt for short term loans because these loans are given out as quickly as possible by specialized lenders with innovative systems in place. By running an online application process, some short term lenders are able to approve loans within a few hours after the initial loan application is filed, allowing borrowers to gain speedy access to funds that can be used to pay for urgent expenses. 

Some common reasons to apply for a short term loan are:

  1. To pay for unexpected expenses
  2. To cover short term financial constraints until the next payday
  3. To borrow in excess of your income to pay for large expenses

Lenders are willing to accept short term loan applications for various loan purposes. For example, if you wish to borrow funds to pay for a planned home renovation, or to pay for unexpected car repairs, a short term loan is likely available for you.  

However, short term loans are an expensive form of borrowing and should only be sought if the borrower finds it tough to pay for incurred expenses through other means. Before seeking a short term loan, you should exhaust all available sources of financing, including friends and family.

2. How Do Short Term Loans Work

Short term loans are designed to cover small expenses. That’s why lenders usually cap short term loans at $2,000. Also, since these loans are meant to be for the short term, many lenders offer a maximum loan term of up to three months. However, you can easily find some short term loan providers who would be willing to offer loan terms of up to 12 months on a $2,000 loan. 

The Australian government has capped short term loan costs at 20% establishment fee and 4% monthly fee, provided the loan amount does not exceed $2,000. This limit is set at 48% APR in case you borrow more than $2,000, and the lender can also charge a fixed establishment fee that is set at the time of loan origination. Although many lenders apply these maximum rates on their loans, you may be able to find some that are offering cheaper rates. 

Although most short term loan providers operate an online application process, there are some lenders that also give their customers the option to apply in-branch. There might be a few benefits of applying in-branch, such as: 

  1. Faster processing of loan application
  2. Ability to apply for a higher loan amount compared to applying online
  3. Quicker loan amount disbursement, especially with some lenders offering cash payouts
  4. Access to guidance on filling out the application form 

Once your loan application has been approved, the loan amount will be disbursed to you. After receiving the loan funds, you are free to spend them as you wish. The lender will require you to make equal weekly, fortnightly, or monthly repayments, depending upon your preference or the lender’s terms and conditions. 

These payments must be made on time, as late payments are likely to incur a late fee. Also, there are a few contingent costs that may apply to your loan such as default fee, early repayment fee, and arrears. Make sure you go through the loan agreement and understand all the terms and conditions that would make you liable to pay these fees. Only sign the loan agreement if you are fully confident in your ability to make timely repayments for the duration of the loan term.

3. Eligibility Criteria

To be eligible for a short term loan, you must:

  1. Be more than 18 years of age
  2. Hold citizenship or permanent resident status in Australia
  3. Have a regular income that exceeds $350 on a weekly basis, with more than half of your income coming from sources other than Centrelink/government benefits
  4. Prove sufficient affordability to make loan repayments including an adequate credit score

Each loan application is evaluated on an individual basis, so there are no set criteria when it comes to the credit history of the borrower. As long as the borrower is able to provide sufficient evidence that the loan payments can be made easily from regular income, there is a high chance the loan application would be accepted even if the borrower has a bad credit history.

4. Examples Of Short Term Loans

There are many short term loan providers in Australia, and most have similar loan terms and conditions. The following table offers a brief summary of the types of short term loans available with a few of these lenders. All of these lenders charge a 20% establishment fee and a 4% monthly fee, although each lender has different additional costs that may apply on your loan, such as default fee.

Lender

Max Loan Amount

Loan Term

Loan Payout Time

Fortnightly Payments (On a loan of $1,500)

Sunshine Loans

$2,000

9-14 weeks

Around 30 minutes, provided conditions are fulfilled

$396

Nimble Loans

$2,000

62 days - three months

Around one hour, provided conditions are fulfilled

$372

Credit24

$2,000

Six - Twelve Months

Same day funding, provided conditions are met

$396

Ferratum Money

$1,900

3-12 months

Same day funding, provided conditions are met

$396

5. Advantages and Disadvantages

Advantages:

  • Quick Payout

A major reason many borrowers prefer to opt for a short term loan is the quick payout. Some lenders are able to release short term loan funds within the same business day. This feature makes short term loans very attractive, especially if you require the funds on an urgent basis. 

  • Short, Convenient, And Fast Application Process

Many short term loan provides operate an online application form which takes under 15 minutes to complete. The application is submitted electronically and instantly reaches the lender for review. If the loan is accepted, the loan agreement is also electronically communicated and signed.

  • Adequate Loan Amount To Cover Most Types Of Emergency Expenditure

Most people are looking for funding under $2,000 to pay for urgent expenses, and a short term loan is able to fulfill this requirement.

  • Good Variety Of Lenders

There are many lenders in Australia providing short term loans.

  • Acceptance Of Borrowers With Bad Credit Score

Even if you have a bad credit rating, short term loan providers might still accept your application form provided you are able to prove sufficient affordability to repay the entire loan amount by the end of the loan term.

Disadvantages:

  • High Fees

Short term loans are among the most expensive borrowing options available to Australians. Although the rates have been capped by the Australian government, the loan can still prove to be very costly, especially with a longer loan term. Borrowers should try repaying the loan as early as possible to minimize loan costs. 

  • Exploitative Lenders

There are many short term lenders in Australia that are operating in a responsible manner. However, some lenders defy best practices and seek out borrowers who are likely to default on the loan. Also, some lenders might have hidden costs associated with the loan, and these costs are only revealed once the loan agreement has been signed.

6. Application Process

To apply for a short term loan online, there are a few steps you must follow. Alternatively, you can apply in-branch with some lenders as this might be the faster option.

Step 1 - Fill out the online application form

The first step is to submit an online application form. This form can be easily found on the website of your chosen lender under the Apply Now section. It’s important to ensure that you fill out this form with the most up-to-date and accurate information, as any discrepancies can cause potential delays in the loan process.

Normally, you would need the following information to complete the application form:

  1. Personal information including full name, ID information, date of birth, contact information, residential address
  2. Employment details, including employer name, contact information
  3. Income and expense details, including regular income generated from all sources, and all expenses made during the month
  4. Bank statements for the past 90 days
  5. Any supporting documents as required by the lender 

Step 2 - Provide additional documents/information

Once your loan application is received and entered into processing by the lender, they may ask you for additional information or documentation within a few hours. This information is usually required when the submitted information is insufficient to prove the borrower’s ability to make loan repayments.

Step 3 - Accept the loan agreement

If the lender approves or rejects your application, they will let you know within a few hours of receiving all documents. In case the application is accepted, the lender will send a loan agreement that you must electronically sign and send back to the lender. Make sure you carefully go through all the information contained in this agreement before signing it, as you would be bound to this agreement once the signed agreement reaches the lender.

Step 4 - Receive the loan funds

As soon as the lender receives the signed loan agreement, it will process the loan funds and disburse them within a few hours. The funds should become available in your bank account within the same day, or a couple of working days, depending upon the lender and the processing times at your bank.

7. FAQs

  1. What is the maximum loan term I can get with a short term loan?
    The maximum loan repayment term you can get with a short term loan is one year, although some lenders offer up to two years as a short term loan even though any timeframe beyond one year is not considered short term.

  2. Do I need to submit any assets as collateral to get a short term loan?
    Some short term loan providers might ask you to submit an asset or security against the loan amount as security, to be given back to you on full repayment of the loan amount and conclusion of the loan term. However, make sure you are fully capable of making loan repayments on time, as you can lose your collateral assets if you default on the loan. On the bright side, some lenders that require collateral might offer a lower interest expense to you compared to other short term loan providers.

  3. Is it better to use my credit card or bank’s overdraft facility instead of getting a short term loan?
    If you have access to a credit card or an overdraft facility with your bank, then these options are definitely worthy of consideration as they might be quicker to access and be cheaper than a short term loan.

  4. What can I use a short term loan for?
    A short term loan can be used to pay for any personal expenses, including home renovations, medical expenses, car repairs, educational fees, doctor’s fee, utility bills, or general living expenses, to name a few. However, some lenders might not allow you to use these funds for some purposes, such as debt restructuring, payment of credit card debt, or for gambling, to name a few. These restrictions are usually put in place to protect the borrower’s interests.