Short-term loans vs personal loans: what’s the difference?

When you need money, the type of loan you choose matters as much as the lender. A short-term loan and a personal loan can both put cash in your account, but the amount you can borrow, how long you have to repay and what it costs are quite different.

The quick comparison

	Short-term loan	Personal loan
Typical amount	A few hundred Rand up to R8,000	From a few thousand Rand up to several hundred thousand
Repayment term	Up to six months	Usually one to six years
Interest cap under the NCA	5% a month on a first loan in a year	The repo rate plus 21% a year for unsecured credit
Decision speed	Often minutes	Same day to a few days
Best for	A small, one-off shortfall	A larger planned cost or consolidating debt

How short-term loans work

The National Credit Act defines short-term credit as an unsecured loan of up to R8,000 that’s repaid within six months. Because the amounts are small and the terms are short, lenders can automate most of the assessment, which is why decisions and payouts can be fast.

The trade-off is cost. The monthly interest cap is high compared with a personal loan, so a short-term loan is only cost-effective when you repay it quickly.

How personal loans work

Personal loans are for larger amounts over longer periods. The interest rate is lower on an annual basis, but you pay it for much longer, so the total cost of a big personal loan can still be substantial. Banks and larger lenders usually look more closely at your credit history and may take longer to decide.

Which one should you choose?

A short-term loan may suit you if

• you need a small amount for an urgent, one-off expense
• you can comfortably repay it from your next one or two pay cheques
• speed matters more than having a long time to repay

A personal loan may suit you if

• you need more than R8,000
• you’d prefer smaller monthly repayments over a longer time
• you’re planning ahead rather than dealing with an emergency

What both have in common

Whichever you choose, the lender must be registered with the National Credit Regulator, carry out an affordability assessment and give you a quote showing all costs before you sign. You also have the right to settle either type of loan early.

General information only, not financial advice. Instant Loans SA is a credit broker, not a lender.