Many traditional short-term loans offer cash quickly in exchange for extremely high interest rates and fees. As an alternative, some people turn toward a personal loan.

Personal loans are generally payable in equal monthly installments over an extended period. You also have the option to pay the loan off early to free up income in your spending plan and possibly save on interest. However, it could be a costly move if the lender charges a prepayment penalty.

What is a short-term personal loan?

A short-term personal loan is a form of borrowing that requires little to no collateral and typically includes repayment terms of one year or even less. In some cases the repayment timeline may be just a few weeks or months.

In order to qualify for these types of loans, you’re often required to provide proof of employment and a certain monthly salary. You’ll also need identity documentation, such as a driver’s license or some other form of ID. These loans typically do not involve providing collateral and the credit requirements are lower than other types of personal loans. As a result you’ll typically pay steeper interest rates to compensate for such risks on the lender’s part.

What to do when you want a short-term loan

Many consumers turn to personal loans over other forms of financing because they come with more competitive interest rates and loan terms between one and seven years. The longer the loan term, the more affordable the monthly payment, making it easier to stay on track and preserve your credit rating.

Still, the cost savings in the short term also means you’ll spend more on interest over time. To illustrate, if you get a 3-year, $5,000 loan with a 9 percent interest rate, you’ll pay $159 monthly and $5,723.95 over the loan term. But if you accept a 2-year term, your monthly payment will increase to $228, but you’ll only pay $5,482.17 for the life of the loan.

If you’d prefer to save on interest, you can opt for a personal loan with a shorter term. Or you can take out a loan with a longer term to get a lower monthly payment that doesn’t stretch your budget too thin and pay it off early. However, it’s vital you choose a lender that lets you pay the loan off before the term expires without incurring a penalty.

How to compare short-term personal loans

When shopping around for short-term personal loans, it’s important to look at all of the expenses and terms associated with each lender side by side and understand what the overall cost will be.

It’s important to make sure a loan not only works comfortably within your monthly budget, but also offers terms that make sense for your financial situation and needs. This should include finding a loan that does not charge exorbitant late fees or prepayment penalties. Some of the specific items to compare side-by-side include:

  • Origination fees
  • Interest rates
  • Prepayment penalties
  • Repayment timeline
  • Monthly payment amount

Online personal loan lenders with no prepayment penalties

If you’re seeking a short-term loan, it’s best to only consider lenders who don’t penalize borrowers who wish to repay before the loan term ends. Otherwise, you will have to pay fees to close out the loan in your preferred time frame. Luckily, several lenders do not charge fees for paying off your loan early.

Lender Loan amount Terms APR range
Happy Money $5,000-$40,000 2 to 5 years 11.72% – 17.99%
LightStream $5,000-$100,000 2 to 7 years 7.49% – 25.49%* with AutoPay
 SoFi $5,000-$100,000 2 to 7 years 8.99% – 29.49% with AutoPay
 Upstart $1,000-$50,000 3 to 5 years 7.80% – 35.99%

Happy Money

Happy Money puts customers first with its innovative approach to lending. Its personal loans are ideal for consumers looking to consolidate high-interest debts to save money, and borrowers also get exclusive access to various tools to help manage their finances more effectively.

While their funding times are a bit slower than what you’ll find with other online lenders, the minimum credit score requirement is on the lower end. And if you have pristine credit, you could qualify for a loan with an attractive interest rate.

There are no prepayment penalties or late payment fees, but an origination fee may apply. The exact amount of the fee is based on your loan amount, term and credit quality.


LightStream offers some of the lowest interest rates on personal loans. Although you’ll need a good or excellent credit score and lengthy credit history to qualify, you could be eligible for a flexible loan that doesn’t come with spending restrictions.

If you can find a comparable loan product elsewhere with a better rate, LightStream will offer you a rate that’s 0.1 percentage points lower. Also, keep in mind that shorter loan terms typically come with lower interest rates, which means it’s in your best financial interest to opt for a shorter repayment period.

Same-day funding is available, and there are no prepayment penalties or other fees.


When doing business with SoFi you’ll get free access to financial advisors, career resources and other virtual experiences and events designed to help you level up your finances.

This online lender features a seamless application experience, and you have the option to pay application, origination, late payment or prepayment fees — allowing you to tailor your payments to your needs. SoFi also allows joint applications if you’re unable to qualify for a personal loan on your own.


Upstart is worth considering as it also offers competitive interest rates and rapid funding options. Plus, the lender looks beyond your credit score and examines your education and work history to determine if you’re a good fit for a personal loan.

If approved for funding, you won’t pay a prepayment penalty if you pay the loan off early. Still, Upstart charges an origination fee of up to 10  percent, along with late payment and returned payment fees. You’ll also pay a fee if you choose to receive paper statements in the mail.

Pros and cons of short-term personal loans

When you’re considering a personal loan, it’s always important to think about the pros and cons of borrowing money this way. In the case of short-term personal loans the benefits can include receiving the money quickly — sometimes in as little as one business day. Many also offer a quick and easy application process. There are plenty of lenders to choose from, which allows you to shop around and find the best loan terms and rates for your needs. There are even options for those with bad credit.

However, many lenders accept lower credit scores which makes the interest rates associated with short-term loans steep. Many also have steep fees for such things as late payments and may also charge origination fees.

Alternatives to a personal loan for a short-term loan

A shorter-term personal loan isn’t the only option to get the funds you need. Here are some alternatives:

  • Credit card: If you have a credit card with available credit, you can use it to meet your short-term financial needs. Be sure to repay what you spend before the due date rolls around to avoid accruing interest on those purchases. Or you can apply for a credit card that offers zero percent APR on purchases for a limited time and pay it off before the promotional period ends.
  • Car title loan: You can borrow up to 50 percent of your car’s market value (if you own it outright) with a car title loan. Perfect credit isn’t required, but here’s the catch: you can expect to pay a hefty interest rate and your car is used as collateral. So, this loan product can stretch your budget too thin, and you could lose your vehicle if you fall behind on payments.
  • Payday loan: These loan products cater to consumers with poor credit and should only be used as a last resort as they come with hefty APRS, sometimes as high as 600 percent. When you apply, the lender will request your paystub and banking information to ensure you are employed and know where to pull the funds from when it’s time to collect. Most loans do not exceed $500 and are due on your next payday.

Bottom line

A personal loan can help you get over a short-term financial hardship or cover an important expense. When researching your options, confirm that the lender does not charge prepayment penalties. Even if you get a lengthy repayment period with a higher interest rate, your payment will be more affordable and you’ll have the ability to pay the balance in full early to save on interest.

If a personal loan isn’t a good fit, however, other options are available. Be sure to consider the benefits and drawbacks of each to make an informed and intelligent financial decision.