When facing an unexpected expense, cover a surprise bill with savings first, and if you need to borrow, compare the APR and total repayment on each loan option. Pick the cheapest one you can pay back on time.
The check engine light comes on the same week rent is due. The mechanic quotes $900 for the repair, and your checking account holds about half that.
You're not alone.
According to the Federal Reserve's 2025 household survey, 63% of adults said they could cover a surprise $400 expense using cash, savings, or a credit card paid off at the next statement. Others said they would need to borrow, sell something, or find another way to cover the expense.
Short-term loans offer access to money when savings fall short, but borrowing can be expensive. Understanding the costs and reviewing your budget can help you avoid taking on debt you can't comfortably repay.
What Are Short-Term Loans?
Short-term loans generally provide smaller amounts of money that borrowers repay over a relatively brief period. Payday loans often require repayment within two weeks, while some installment loans allow monthly payments over several months.
The main difference between loan offers is often the cost. Check the annual percentage rate (APR), which includes interest and certain fees, along with the total amount you'll repay.
According to the CFPB, a typical payday loan charge of $15 for every $100 borrowed works out to nearly 400% APR over two weeks.
When Does a Short-Term Loan Make Sense?
Borrowing may be worth considering when an essential expense can't wait, and you have a reliable way to repay the money.
Examples include:
- An urgent car repair needed for commuting
- Medical treatment that requires immediate payment
- A utility bill with an approaching shutoff date
- Emergency housing expenses after an unexpected move
Even in these situations, check whether the provider offers a payment plan before applying for credit.
Avoid borrowing for purchases you can postpone. Work out how much the loan will cost and whether the repayments leave enough money for your regular bills.
Compare Your Options Before You Borrow
Borrowing costs vary considerably, so compare the options available to you. Consider:
- Credit union loans: Some federal credit unions offer payday alternative loans of up to $2,000, subject to program rules and eligibility
- Personal installment loans: Banks and online lenders offer loans with scheduled repayments, although rates depend on the lender and borrower
- Credit cards: An existing card may provide access to funds, but cash advances often carry additional fees and higher interest rates
- Paycheck advance services: These provide early access to wages, sometimes with transfer fees or subscription charges
Check the repayment period as carefully as the advertised rate.
The phrase quick loan doesn't describe one standard product. For example, this UK guide to types of quick loans describes personal loans repaid over 12 to 60 months. U.S. borrowers should compare products available under their own state's lending rules.
Explore Ways to Pay Without Borrowing
Before taking on debt, contact the company you owe. Hospitals and utility providers sometimes offer payment arrangements that allow you to spread an expense over several months.
You may also qualify for financial assistance. Community organizations and government assistance programs sometimes help eligible households cover essential expenses, including emergency housing and utility costs.
If you're facing a large medical bill, ask the hospital about its financial assistance policy. Some nonprofit hospitals must provide financial assistance to eligible patients.
These options won't be available in every situation, but checking them could save you the cost of borrowing.
Build Habits That Reduce the Need to Borrow
An emergency fund gives you money to draw on when an expense arrives without warning. You don't need to save hundreds of dollars immediately.
Consider these habits:
- Build emergency savings: Choose an affordable amount to transfer from each paycheck, and do so as frequently as you can
- Review your personal budget: List essential bills against expected income before deciding what you can save
- Prepare for irregular costs: Set aside money for expenses such as vehicle maintenance or annual insurance payments
- Review payment dates: Ask providers whether you can move due dates to better match your pay schedule
Good cash flow management means knowing when money will enter and leave your account. It also helps you identify a potential shortfall before a payment is due.
Frequently Asked Questions
Does Applying for a Short-Term Loan Hurt Your Credit Score?
Checking eligibility may involve a soft credit inquiry, which doesn't affect your score. A formal application can trigger a hard inquiry. Confirm the lender's process before applying.
Can You Get a Short-Term Loan With Bad Credit?
Some lenders accept borrowers with poor credit, although approval isn't guaranteed and rates may be higher. Be cautious of guaranteed-approval offers or lenders demanding upfront fees.
What Happens if You Can't Repay a Payday Loan on Time?
You could face additional fees or collection activity. Some lenders offer extensions, but these can increase borrowing costs. Contact the lender before the deadline to discuss available arrangements.
Are Interest Rates on Short-Term Loans Capped?
Rules vary by state and loan type. The Military Lending Act generally limits covered consumer credit for eligible service members and dependents to a 36% Military Annual Percentage Rate, which includes certain fees.
How Fast Can You Get Money From a Short-Term Loan?
Some lenders provide funds on the same day or the next business day. Approval requirements, application timing, and bank processing can affect how long the transfer takes.
Can You Repay a Short-Term Loan Early?
Many lenders allow early repayment, which could reduce the interest you pay. However, some loans carry prepayment penalties or other charges. Review your agreement to understand whether paying off the balance early will save you money.
Handle Unexpected Expenses Without Making Things Worse
Unexpected bills rarely arrive when you have extra money sitting around. Before taking out short-term loans, compare your options and work out what you can afford to repay.
Borrowing might cover an urgent expense, but the repayments shouldn't leave you unable to pay your regular bills.
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This article was prepared by an independent contributor and helps us continue to deliver quality news and information.
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