Short term personal loans

By Polly Fleeting ·
young-woman-on-laptop-searching-for-short-term-loan

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 pay cheque.

In Australia, short term personal loans are usually for amounts of around $2,000 or less. These 'fast' lenders are often seen flashing before you during late night TV ad breaks!

But remember, the fees and charges are different and are a lot higher than those from a regular personal loan or credit card.

Personal Loan Comparison - page last updated October 17, 2020

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  • 6.99% p.a.to 25.69% p.a.

    7.79% p.a.to 26.65% p.a.based on $30,000
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    Terms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 6.99% would cost $36,208.67 including fees.

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  • Hot DealZERO Upfront fee until 31st October 2020^

    6.95% p.a.to 19.99% p.a.

    6.95% p.a.to 19.99% p.a.based on $30,000
    over 5 years

    Terms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 6.95% would cost $35,599.71 including fees.

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  • mozo-experts-choice-2019

    6.49% p.a.to 8.99% p.a.

    6.84% p.a.to 9.34% p.a.based on $30,000
    over 5 years

    Terms from 3 to 5 years. Representative example: a 5 year $30,000 loan at 6.49% would cost $35,459.64 including fees.

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  • 6.75% p.a.to 8.48% p.a.

    6.96% p.a.to 8.69% p.a.based on $30,000
    over 5 years

    Terms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,580.23 including fees.

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  • 6.95% p.a.to 17.95% p.a.

    6.95% p.a.to 17.95% p.a.based on $10,000
    over 3 years

    Terms from 2 to 7 years. Representative example: a 3 year $10,000 loan at 6.95% would cost $11,107.53 including fees.

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Payday loans can become addictive (as in re-occurring) causing 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 you might take out a short term personal loan?

One day - you might suddenly find yourself in a position where you need instant cash i.e. on the spot, then and there! Heaven forbid this never happens to you but if it does, a short term personal loan could be an option to get you out of dire straits. Here are some circumstances when you might need a short term personal loan:

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

Short term loan options:

If you are in need of a loan for a short period of time a fast cash loan isn’t your only option. There are some traditional banking alternatives like a personal loan or credit card worth considering. At the end of the day, it all comes down to your personal circumstances and financial situation when deciding which loan to go for. But, it's important to understand the pros and cons of each before making an informed decision.

Payday or Fast Cash Loan

Pros:

  • Swift delivery of money, usually within 24 hours
  • Minimal paperwork when applying
  • No security required by the lender

Cons:

  • Exorbitant interest rates, typically 48% p.a.
  • Hefty upfront fee of 20% on the amount that’s being borrowed
  • Being a short term it need to be repaid quickly e.g. 30 days

Unsecured Personal Loan

Pros:

  • Lower interest rates than credit cards and short term personal loans
  • 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)
  • No security required by lender

Cons:

  • Need a good credit rating
  • Penalties for paying off the loan before the term has ended (fixed rates loans).

Credit Card

Pros:

  • Ideal for those who need to borrow a small amount of money
  • Flexibility to make repayments as you please
  • Interest rates are a lot lower than payday loans

Cons:

  • Credit card interest rates can be as high as 24.99% p.a.
  • Easy to get debt level beyond your means
  • Longer lead time to get 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 market has become very competitive when it comes to personal loans, even for lower loan amounts.

This 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
Fees
Upfront, ongoing, or early repayment fees
Lower fees than banks, some don’t have application, ongoing or exit fees
Application
Online or face to face in a branch, can take a while for fund to hit your account
Fast online application, funds can arrive in your account the same day
Term and 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
View bank deal here
Click here for P2P deals

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, how long you have to pay back the lender and be debt free! The term of your loan will be determined by your budget/financial situation; what you can afford for each repayment. A payday loan may be repaid over 16 days to one year. It’s extremely important to stick within the means of your budget. Crunch some numbers with our personal loan repayment calculator.

Interest rate types: There are two types of interest with personal loans - fixed and variable. With a fixed interest, the rate is locked away for the term of your loan. A variable interest rate will change throughout the loan term according to the market interest rates.

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 gives you some flexibility with your repayments. You might be on a fixed budget now but this could change and you don’t want to be locked in paying more than you need to down the track. Being able to make extra repayments or changing the frequency in which you pay back the loan can save you lots of money in interest.

Fees and charges: There is no shortage of fees and charges on personal and short term loans. These include: application fee, set up fee, 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:

Applying for a payday loan is usually done online and generally you’ll have to provide the following supporting documents to get approval. You do have to be a minimum of 18 years old!

  • Proof of identity e.g. drivers 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

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 consider other ways of earning some extra cash before taking out 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 on your field of expertise

Tips for improving your credit rating:

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

However, when applying for a personal loan a lot of lenders will check your credit rating. Here are some tips to keep a strong credit rating:

Tip #1 Pay your bills on time – It’s a no brainer but pay your bills on or before the due date

Tip #2 Meet your loan repayments – Don’t bite off more than you can chew!

Tip #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

Tip #4 Reduce your debt: credit ratio – The lower the ratio, the better your credit.

Useful guide: Personal loan vs credit card

*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. WARNING: 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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Polly Fleeting
Polly Fleeting
Money writer

Polly Fleeting is a personal finance writer here at Mozo, specialising in loans and credit cards. Her work is aimed at helping people find ways to make smart product choices, reduce debt and get more for their hard-earned dollars. Polly has a degree in Journalism from the University of Technology, Sydney.