Many traditional short-term loans offer quick cash in exchange for extremely high interest rates and fees. As an alternative, some people turn to personal loans.
Personal loans are usually paid in equal monthly installments over a long period of time. You can also opt for a prepaid loan to free up income from a spending plan and potentially save on interest. However, this can become a costly step if lenders require an advance penalty.
What if you want a short-term loan?
Many consumers choose personal loans over other forms of financing because they offer more competitive interest rates and repayment terms ranging from one to seven years. The longer the loan term, the cheaper the monthly repayments, the easier it is to stay on track and protect your credit.
However, short-term cost savings also mean that you’ll spend more on interest over time. To put this into perspective, if you take out a $5,000 3-year loan with a 9% interest rate, you’ll pay $159 a month, or $5,723.95 over the life of the loan. However, if you accept the 2-year term, your monthly payment will increase to $228, but you will only pay $5,482.17 over the life of the loan.
If you like saving on interest, you can opt for a personal loan with a shorter term. Alternatively, you can take out a long-term loan for a lower monthly interest rate so your budget isn’t too strained and you can pay it off early. However, it is important that the lender you choose allows you to pay off the loan before the term expires without incurring penalties.
Online personal lender with no prepayment penalty
If you’re looking for a short-term loan, it’s best to only consider lenders that don’t penalize borrowers who choose to repay before the end of the loan term. Otherwise, you will have to pay a fee to close the loan within your preferred time frame. Fortunately, some lenders do not charge fees for prepaid loans.
| Lender | Loan amount | Terms | APR range |
|---|---|---|---|
| Happy Money | $5,000 – $40,000 | 2 to 5 years | 5.99% – 24.99% |
| LightStream | $5,000 – $100,000 | 2 to 7 years | 3.99% – 19.99% (with AutoPay) |
| SoFi | $5,000 – $100,000 | 2 to 7 years | 6.99% – 22.23% (with AutoPay) |
| Upstart | $1,000 – $50,000 | 3 to 5 years | 5.40% – 35.99% |
Lucky money
Happy Money puts customers first with its innovative way of lending. Its personal loans are ideal for consumers looking to consolidate high-yield debt to save money, and borrowers also get exclusive access to a variety of tools to help them manage their finances more efficiently.
While their financing times are a bit longer than other online lenders, the minimum credit requirements are on the lower end. If you have an impeccable credit history, you may qualify for a loan with an attractive interest rate.
There are no prepayment penalties or late fees, but a processing fee of up to 5% may apply.
LightStream
LightStream offers some of the lowest personal loan interest rates. Although you need good or excellent credit and a long-term credit history to qualify, you may qualify for a flexible loan with no spending limits.
If you can find a similar loan product with a higher interest rate elsewhere, LightStream will give you a 0.1% lower rate. Also, keep in mind that shorter loan terms usually come with lower interest rates, which means it’s in your financial best interest to choose a shorter repayment term.
Same-day financing is available with no upfront penalties or other fees.
Sophie
If you have a credit score of at least 680, you may qualify for a personal loan from SoFi, even if you have very little credit history. Another major benefit of doing business with an online lender is free access to financial advisors, career coaches, and other virtual experiences and events designed to help you improve your finances.
This online lender offers a seamless application experience and you don’t have to pay application, origination, late fees, or prepayment fees. SoFi also allows joint applications if you are not eligible for a personal loan yourself.
Upstart
Upstart is worth considering because it also offers competitive rates and fast financing options. Also, lenders look beyond your credit history and check your education and work history to determine if you qualify for a personal loan.
With funding commitments, you will not pay any prepayment penalty if you repay the loan early. Still, Upstart charges a processing fee of up to 8%, as well as fees for late payments and refunds. If you choose to receive paper statements by mail, you will also be charged a fee.
Personal Loan Alternatives for Short Term Loans
Short-term personal loans are not the only way to get the funds you need. Here are some alternatives:
Credit card: If you have a credit card with a free balance, you can use it to meet your short-term financial needs. Make sure you repay your fees before the due date to avoid interest on these purchases. Alternatively, you can apply for a credit card that offers zero APR on purchases for a limited time and cash out before the promotional period ends.
Auto title loan: A car title loan allows you to borrow up to 50% of your car’s market value (if you own it outright). Perfect credit is not required, but here’s the thing: you’ll be facing high interest rates and your car will be used as collateral. As such, this credit product can overtax your budget and you could lose your vehicle if you default on your payments.
Payday Loans: These loan products are aimed at consumers with poor credit ratings and should only be used as a last resort as they come with high APRS, sometimes as high as 600%. When you apply, the lender will ask for your payslip and bank details to ensure you are hired and know where to withdraw your money when it is collected. Most loans are under $500 and are due on your next payday.
Bottom line
A personal loan can help you get through a short-term financial emergency or cover important expenses. When researching your options, make sure the lender doesn’t charge any upfront penalties. Even if you get a longer repayment term at a higher interest rate, your payments will be cheaper, and you can choose to pay off your balance in full early to save on interest.
However, if a personal loan is not suitable, other options are available. Be sure to consider the pros and cons of each to make informed and informed financial decisions.
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