Ways to Obtain a Short-Term Loan

Most consumers are familiar with a typical auto loan, which could span three to seven years, or a home mortgage, which often takes up to 30 years to repay.

However, where can consumers turn when they are in need of short-term financial assistance?

Fortunately, there are options available for individuals in need of a short-term loan. Those options include personal unsecured loans, credit card advances and payday loans.

How to Obtain a Personal Unsecured Loan

A personal unsecured loan works much like other types of loans. The key difference, however, is the borrower does not need any collateral in order to obtain the loan. To secure a personal unsecured loan, however, the borrower does need to earn a solid income and have a good credit score.

Personal unsecured loans can come with shortened repayment periods compared to other types of loans and are generally repaid in fixed monthly installments.

Finance charges associated with personal unsecured loans are typically limited to the loan's annual percentage rate, or APR. These rates can be much higher than the interest rates associated with other types of loans, but they often are capped at 36 percent.

Because of the higher-than-normal interest rate, however, borrowers should try to repay the loan as quickly as possible versus making only the minimum payment each month.

How to Obtain a Credit Card Cash Advance

If you own a credit card, more than likely, that credit card provides a cash advance option. Essentially, a cash advance is an extension of the credit card but in the form of actual cash.

Typically, the credit card cash advance is directly deposited into the cardholder's bank account and is then repaid in the same manner as other charges on the credit card.

Credit card cash advances generally come with a 3 percent finance fee plus an APR that is higher than the interest charged for regular purchases - normally around 20 percent or higher.

When taking out a cash advance, borrowers do need to be careful in how that cash advance is repaid. Most credit cards will apply payments to the balance with the lowest interest rate first, which can cause the cash advance balance to sit there accruing interest at the higher APR.

To avoid this scenario, try to secure a cash advance only from those credit cards that do not already carry a balance and then try not to use the credit card for purchases until the cash advance balance is paid off.

How to Obtain a Payday Loan

Payday loans provide borrowers quick and convenient access to cash loans. Another benefit of payday loans is borrowers generally do not need good credit to obtain one, setting this type of short-term loan apart from personal unsecured loans or credit card cash advances.

Another way in which payday loans are different is the repayment window associated with payday loans is significantly shorter than the repayment periods for personal unsecured loans and credit card cash advances - typically, only 14 to 31 days.

To obtain a payday loan, the borrower normally only needs to have a relatively modest income and an active savings or checking account.

In general, payday lenders charge fees ranging from 10 percent to 25 percent of the amount of the total loan. These finance charges do result in a very high APR - generally starting around 400 percent - which is why these types of loans do come with such short repayment periods and should be repaid by the loan's original due date.