Mozo guides

Short term personal loans


Also known as a ‘payday loan’ or ‘fast cash loan’, a short-term personal loan is designed to provide you with immediate, small amounts of cash that will tide you over until your next paycheck.

In Australia, short-term personal loans are usually for amounts of around $2,000 or less. You’ll often see ads for these 'fast' lenders pop up during late-night TV ad breaks!

But be aware that these ‘quick cash loans’ typically come with a lot more fees than your average personal loan or credit card would.

Payday loans can become addictive (as in recurring) and potentially lead a vulnerable borrower to spiral into an unaffordable amount of debt.

So, it’s very important to understand exactly how a short-term personal loan works before taking one out.

When would you take out a short term personal loan?

Should you ever find yourself in a situation where you need quick access to cash, one potential (and typically “last resort”) finance option could be a short-term personal loan.

Here are some circumstances when you might need a short-term personal loan:

  • Bonds/moving expenses
  • Car repairs
  • Furniture/household items
  • Unexpected bills
  • Unexpected expenses
  • School fees

Short term loan options

If you need a loan for a short period of time, a fast cash loan isn’t your only option. Some traditional banking alternatives to consider could be a personal loan or credit card

At the end of the day, when deciding which loan to go for – it all comes down to your own individual circumstances and financial situation. Here are some of the pros and cons of each option to help you make a more informed decision:

Payday or fast cash loan:

• Swift delivery of money, usually within 24 hours• Exorbitant interest rates, typically 48% p.a.
• Minimal paperwork when applying• Hefty upfront fee of 20% on the amount that’s being borrowed
• No security required by the lender• Being a short term loan, it needs to be repaid quickly, e.g. 30 days

Unsecured personal loan:

• Lower interest rates than credit cards and short-term personal loans• Need a good credit rating
• Allows you to borrow larger sums of money (generally, up to $50,000) and repay it over an extended period of time (up to 7 years)• Penalties for paying off the loan before the term has ended (fixed rates loans)
• No security required by the lender

Credit Card:

• Ideal for those who need to borrow a small amount of money• Credit card interest rates can be as high as 24.99% p.a.
• Flexibility to make repayments as you please• Easy to spend beyond your means
• Interest rates are a lot lower than payday loans• Longer lead time to get a card

Learn more about credit cards and read user reviews here!

Bank vs Peer to Peer Lending

With the introduction of peer-to-peer (P2P) lending in Australia, the personal loans market has become very competitive, even for lower loan amounts.

The question is, do you go with a reputable, established bank, or should you turn directly to an investor for some P2P lending?

Let’s break down the key differences:

Bank Peer to Peer
Interest rates
Banks offer both fixed and variable interest rates, but they are often higher than P2P
The major P2P lenders in Australia usually offer unsecured fixed interest rates
Upfront, ongoing, or early repayment fees
Lower fees than banks. Some don’t have application, ongoing or exit fees
Online or face-to-face in a branch. Can take a while for funds to hit your account. Fast online application, funds can arrive in your account the same day
Term & amounts
Higher borrowing amounts and longer terms than P2P
Some don’t lend over $30,000 and have a maximum loan period of 5 years
Credit rating
Require a good to excellent rating for loan approval
Some P2P providers have tiered interest rates depending on your credit rating
Compare major bank personal loans here
Compare peer-to-peer (P2P) lending personal loans here

REMEMBER: At the end of the day you should choose a lender that can give you the best overall deal for your particular circumstances.

Features to look for when choosing a loan to suit you:

  • Loan term: This refers to the duration of the loan – A.K.A. how long you have to pay the lender back! The personal loan term you opt for will depend on your budget/financial situation and the regular repayment amount you can afford to commit to. Payday loan terms typically range between just 16 days to one year – so it’s imperative to only borrow within your means. Crunch some numbers with our personal loan repayment calculator.
  • Interest rate types: There are two types of personal loan interest rates – fixed and variable. With a fixed-rate personal loan, the rate is locked in for the term of your loan. With a variable-rate personal loan, however, the interest rate could change throughout your loan term according to the market interest rate movements. In 2013, the Government introduced tough regulations around payday loans, capping interest rates at 4% a month. If you do the maths, this works out to be 48% over a year!
  • Flexibility: Look for a loan that offers flexible repayment features – like the choice between weekly, fortnightly or monthly repayments to suit your schedule or the ability to make extra repayments if you can afford to. Making extra repayments or changing the frequency of your regular repayments could help you save on interest.
  • Fees & charges: Short-term personal loans can often come with a range of fees, including application fees, set-up fees, monthly and/or annual fees, late repayment fees and charges for paying off the loan early.

What you’ll need to get approved for a short-term loan

Nowadays, payday loan applications are generally done online. You’ll generally need to provide the following information and supporting documents when applying:

  • Proof of identity, e.g. driver's licence, passport or Medicare card
  • Recent payslips, including Centrelink payments
  • 90 days of statements for the bank account your income (including Centrelink payments) is paid into
  • Utility bill confirming your address
  • You'll also need to be at least 18 years old

Other options for getting extra cash:

Often, with a short-term loan, the borrower can find themselves paying more in fees, charges and interest than what they actually borrowed in the first place! So, payday loans are typically a last resort option. 

Here are some alternative ways to score some extra cash before opting for a payday loan:

  • Sell some unwanted gear on eBay
  • Pick up some casual work, e.g. waitress, bartender or customer service work that can be done from home
  • Pet sitting/dog walking
  • Babysitting/house-sitting
  • Coach a local sporting team
  • Tutor university or school students in your field of expertise

Tips for improving your credit rating:

Short-term personal loan lenders can sometimes be more lenient than banks when it comes to your credit rating. Some payday loan providers even accept borrowers with poor credit ratings, which effectively causes the borrower to spiral into even more debt.

When applying for a personal loan, however, pretty much all lenders will check your credit rating. Here are some tips to keep a strong credit rating:

Here are some tips to keep a strong credit rating:

  1. Pay your bills on time: It’s a no-brainer, but pay your bills on or before the due date
  2. Meet your loan repayments: Don’t bite off more than you can chew! 
  3. Don’t max out your credit card: As tempting as it may be to pull out the plastic, keep your credit card balance as low as possible
  4. Reduce your debt/credit ratio: The lower the ratio, the better your credit.

Useful guide: Personal loans vs credit cards

Polly Fleeting
Polly Fleeting
Money writer

Polly is a personal finance writer specialising in loans and credit cards and general consumer banking. She has a degree in Journalism from the University of Technology, Sydney.

Rhianna Dews
Rhianna Dews
Senior Money Writer

Rhianna, RG146 certified in Generic Knowledge and Deposit Products, has helped Aussies with finances for a decade. She's written for TechRadar, Simple Living Australia, and worked with Foxtel and Vodafone.

* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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