Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 14, 2012

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Short-term loans (also known as short-term financing or payday loans) are unsecured financing carrying high interest that typically must be repaid within several weeks. The high interest on short-term loans is a result of the risk posed to lenders. Short-term lenders face risk since they typically lend to anybody with a steady income and checking account, regardless of credit. As a result, short-term loans are usually one of the few forms of lending available to borrowers with bad credit.

These types of financing are some of the easiest for borrowers to access since they only require a verifiable income and a checking account. These loans also have the added benefit of being highly versatile.

A short-term loan can be used for a variety of purposes, ranging from paying for unexpected expenses and outstanding bills, to purchasing common necessities like food and gas.

Unexpected expenses can be difficult obstacles in life. Perhaps the most common and trying unexpected expenses involve car repair bills. Since a vehicle is vital for driving to interviews, school, and work, car repairs are a suitable emergency expense to justify the high interest that comes with a short-term loan.

Many Americans without health insurance know that injuries and examination fees can prove costly. Short-term financing can be used to pay off these expenses, allowing Americans to carry on with their everyday lives in good health and without any looming and accruing medical debt.

Sometimes simple miscalculation or mismanagement of household and personal funds can make it difficult to finish a month “in the black.” High employment and underemployment contributes to the difficulty many Americans face in having the funds each month to pay for utilities, gas, and groceries. Short-term financing can assist struggling Americans living hand-to-mouth at times.

Borrowers must keep in mind that short-term loans carry high interest rates and may leave borrowers vulnerable to costly increases in the form of “rollovers.” For those unfamiliar with what rolling over means, it’s when a borrower extends their payday loan for another term by paying another fee. If borrowers are not careful and mindful of their debt, they can end up paying several times the amount of the loans they originally borrowed.