What is a short term loan?

Applications are usually online and decisions come back quickly, with many lenders advertising same or next business day funding; a manual review or a branch application takes longer. Repayment is either a single lump sum at the end of the term, which is common on very short loans, regular weekly, fortnightly or monthly instalments, or a minimum payment on a revolving line.

The price can be quoted as an annual rate, as a flat rate or as a set of fees, which is what makes these products hard to compare. Expect an establishment or origination fee, ongoing account fees, late and default fees, and sometimes a charge to roll the loan over. Repaying early usually cuts the interest owed, though some contracts carry a break fee.

A short term personal loan is unsecured with fixed instalments, used for an emergency bill or a car repair. Small amount credit contracts, the payday-style products, run over very short terms with capped fees. Short-term business loans and merchant cash advances put working capital in quickly, sometimes with repayments tied to sales. Overdrafts and revolving lines charge only on what you draw.

A secured short term loan costs less because the lender holds security over an asset, but a default can cost you that asset. The product fits a genuine, short shortfall you can clear quickly. Where the need is larger or ongoing, a personal loan or a term loan over a longer period is usually cheaper, month to month and in total.

Before signing, ask for the total amount payable, the full list of fees, what happens if you miss a payment, and whether repaying early costs anything. Check the lender's credit licence details and its dispute process. Those protections apply to borrowing for personal purposes: a loan wholly for business sits outside the NCCP Act, with no licence requirement, no affordability assessment and no consumer credit protections. Pressure to accept on the spot, no written contract, vague fee disclosure, or a lender who skips identity and affordability checks are all reasons to walk away.

Miss a payment and you can expect a late fee, extra interest and a default notice; repeated misses can be reported to the credit bureaus and lead to recovery action. Talk to the lender early about hardship arrangements. Complaints go through the lender's internal process first, then to AFCA. If shortfalls keep recurring, a free financial counsellor is worth a call before you borrow again.