Types of short-term personal loans
Finding the right funding option depends on your specific financial situation and how quickly you plan to repay the funds. Here are 3 common types of short-term personal loans you may encounter as you explore your choices.
Installment loans
Installment loans provide a lump sum of cash that you repay over a set schedule. They have a fixed interest rate and monthly payment amount, so you know exactly what you owe each month.
Payday loans
Payday loans are small loans offered by some lenders that generally don’t require a credit check. They typically have high interest rates and the shortest repayment period, sometimes within 14 days (or close to your next payday).
Title loans
A title loan is a type of secured loan in which you use your vehicle title as collateral. Title loans generally do not require a credit check, but there is a risk of losing your vehicle if you are unable to repay the debt. Title loans also typically have high interest rates and short repayment periods, often 15 to 30 days.
Most short-term personal loans, including those from Citi, are installment loans that offer predictable payments and a set repayment schedule. While you may see options like payday loans or title loans from other lenders, Citi does not offer these types of loans.
How to get a short-term personal loan
Short-term personal loans are available through banks, credit unions and online lenders. The application process is typically straightforward, and borrowers can usually apply online. However, the exact requirements may differ from lender to lender, so research the specific requirements with your preferred lender before applying.
Lenders typically consider factors such as the applicant’s credit score and income when deciding whether to approve a short-term personal loan. Since some personal loans are unsecured, borrowers need to meet the lender’s eligibility requirements.
To apply, you may need to provide personal identification and proof of income, such as recent pay stubs or tax returns. The lender will perform a hard credit inquiry on your credit file, which could temporarily affect your credit score. Most lenders process personal loan applications quickly, so if you’re approved the same day, you could receive the funds in a day or two.
How a short-term personal loan repayment works
You can repay most personal loans in fixed monthly installments. Your interest rate remains unchanged throughout the loan term. As long as you don’t default or make a late payment, your monthly payment should remain unchanged.
Note that lenders may not allow you to extend your loan term once you've borrowed, so it's important to understand what monthly payments you can afford and budget around them.
Advantages of short-term personal loans
Short-term personal loans have some advantages, such as:
Flexible usage
You can use the lump-sum deposit from a short-term personal loan for almost any expense: renovating your home, paying for car repairs or even consolidating debt.
Fixed repayment
Since personal loan installments remain the same month to month, a short-term personal loan’s predictability can help you factor your monthly payments into your budget.
Disadvantages of short-term personal loans
While short-term personal loans can be helpful in certain situations, there are some disadvantages to consider:
Limited loan amounts
Short-term personal loans generally limit how much you can borrow compared to long-term personal loans.
This may not be efficient if you need to borrow more to cover a larger expense.
Shorter repayment period
The shorter repayment timeline can lead to higher monthly payments, which can be harder to manage in the case of unexpected expenses. If you're unable to keep up with payments, you risk falling into debt.
When should I consider a short-term personal loan?
Short-term personal loans make more sense in some contexts than in others, such as:
- Large, one-time expenses: If you’re repairing a car, renovating your home or moving to a new city, the convenience of a fixed interest rate and a monthly repayment plan may make a short-term personal loan a choice worth considering.
- Debt consolidation: You can use a short-term personal loan to consolidate debt, especially when you can find a lower interest rate than the average interest rate of your current debts.
Alternatives to short-term personal loans
If short-term personal loans don’t seem like the right choice for you, there may be other options:
- Personal line of credit (PLOC): A personal line of credit gives you access to revolving credit in the same way as a credit card. But unlike a credit card, your credit account lasts for a limited time. A PLOC allows you to withdraw funds as needed, but your interest rate will be variable and subject to market-rate increases.
- Credit cards: Credit cards are convenient for daily expenses and may even help you access additional rewards, miles or discounts. However, they may also carry higher interest rates and additional fees compared to personal loans, making them a less favorable option for large purchases.
- Long-term personal loan: With a longer-term personal loan, you may be able to opt for lower monthly payments over an extended repayment period. One drawback, however, is that you may pay more interest over time.
- Borrowing from family or friends: If you have a trusted support network, borrowing from friends or family could be an option. This approach can help avoid the interest and fees that come with personal loans, but it’s important to set clear repayment terms to avoid straining relationships.
- Home equity line of credit (HELOC): If you own a home, a home equity line of credit lets you borrow against the equity in your property. This option typically offers lower interest rates compared to unsecured loans but could put your home at risk if you’re unable to repay.
Find a short-term personal loan that meets your needs
Citi offers personal loans to both existing and new Citi customers who meet specific eligibility criteria, including an established credit and income history, as well as additional factors determined by Citi. If you think you could benefit from a Citi® Personal Loan, apply online today.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
