Short term personal loans
A short term personal loan is useful if you need to borrow money but don’t want to be committed to a long term debt.
Keep in mind however, that shorter terms can mean higher repayments, simply because the amount borrowed will need to be paid back in a shorter timeframe. A short term would typically be a year or two.
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
When you need to borrow money quickly, there are a few options to choose from. Traditional banks and credit unions offer a few products, including personal loans, many with fairly good rates. Credit cards are also an option and many have flexible terms for repayment.
Your credit score, need the money, and ability to make repayments will all influence which direction you go in. Taking time to compare these options can help you find the loan that you're looking for.
Here are some of the pros and cons of each option to help you make a more informed decision:
Personal loan (unsecured):
| Pros: | Cons: |
| • Typically lower interest rates than credit cards | • Need a good credit rating |
| • Allows you to borrow large 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:
| Pros: | Cons: |
| • Ideal for those who need to borrow a small amount of money | • Credit card interest rates are usually higher than personal loans |
| • Repayment flexibility | • 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
Do you go with an established bank, or should you turn directly to an investor for some P2P lending?
Let’s break down the main 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 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 | 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.
Short term loan options
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:
| Pros: | Cons: |
| • 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:
| Pros: | Cons: |
| • 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:
| Pros: | Cons: |
| • 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
Do you go with an established bank, or should you turn directly to an investor for some P2P lending?Let’s break down the differences between the two:
| 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 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
|
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.
Scenario: Comparing loan length impact
To get an idea on how loan length affects your total costs and monthly payments, let's compare a $5,000 personal loan across different short-term periods. We'll use a personal loan interest rate of 10.35% p.a. for this comparison:
6-month term:
- Monthly payment: $858.67
- Total interest paid: $152.02
- Total amount repaid: $5,152.02
- Higher monthly payments but less total interest
12-month term:
- Monthly payment: $440
- Total interest paid: $285
- Total amount repaid: $5,285
- More manageable monthly payments, moderate interest costs
24 month term:
- Monthly payment: $232
- Total interest paid: $557
- Total amount repaid: $5,557
- Lowest monthly payments but highest total interest cost
What this means for short term borrowers:
Choosing a loan term means balancing monthly payments against total costs. While a 6-month term offers significant interest savings through higher monthly payments, extending to a 24 month one will nearly quadruple your interest costs. A 12 month term provides a middle ground, but you should still keep your monthly budget in mind.
Overall, shorter terms save money in interest but require more cash on a month-to-month basis.
Comparing choices
To start comparing personal loans, head over to our hub pages. You can then use Mozo’s personal loan comparison calculator to work out which how your selected loan's rate affects your repayments.
* 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.
^See information about the Mozo Experts Choice Personal Loan Awards
Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.
While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.