A doctor holds the hand of his patient.

The need for respite care or rehabilitation care may occur unexpectedly for individuals and their families who may not have the money to pay for these services when they are required. To pay for these services and other health-related needs, an individual may want to consider obtaining a short-term loan in order to access the necessary funds. This article will delve into important information about how and when to seek out short-term loans to pay for respite or rehab care.

What Is A Short-Term Loan?

With a short-term loan, an individual typically borrows a small amount of money — starting as low as a few hundred dollars — and pays it back over a short period of time, sometimes in just a few months.

These types of loans often have quick application processes, no prepayment penalties, and interest-only payment options. In most cases, these loans are simply unsecured personal loans, and the funds are advanced either directly to one’s bank account or to a respite or rehabilitation care provider.

The key thing that differentiates short-term loans from other types of loans is how quickly they must be repaid. It is possible to obtain loans that last for just 90 days or sometimes up to several years, which is significantly lower than the typical loan length of 15 years or more. However, like other loans, an individual’s credit history and current assets are critical factors in the loan approval process.

Short-Term Loans To Pay For Care

The lender an individual chooses may or may not have stipulations on what the funds must be used for, but typically, short-term loans are intended for individuals who need a smaller amount of cash for a shorter period of time. Short-term loans may be beneficial for people who need to pay for respite care, rehabilitation care, or the transition period into senior living and lenders will often approve loans for these purposes.

Respite Care

Respite care provides caregivers a temporary break from caregiving while the individual needing health care spends time in a safe environment with other caregivers who will meet their needs.

Caring for another person on a daily basis can be physically and emotionally demanding, particularly if the individual requiring care is a family member.  According to the Family Caregiver Alliance, the average family caregiver spends several days each month caring for a family member as follows:

  • 21 hours or more providing care every week
  • 13 days per month shopping, cooking, performing housework, offering transportation, and giving medication
  • 6 days per month, assisting with eating, dressing, grooming, walking, bathing, and toileting

The physical, mental, and emotional demands on a caregiver can lead to several health issues, including stress, anxiety, and depression. Respite care often provides a much-needed break for caregivers to rest and restore their bodies and mind, which allows them to continue in their caregiving role.

Short-Term Rehabilitation

While respite care is for caregivers, short-term rehabilitation benefits patients. If an individual has had an injury or illness, they may require rehabilitation in order to regain their previous level of function.

Short-term rehabilitation may involve services such as skilled nursing as well as different types of therapy, including physical therapy, occupational therapy, and speech therapy. In addition, rehabilitation care may occur at home rather than at a clinic.

Transition Into Senior Living

An individual may be in the process of transitioning into a new type of senior living lifestyle, whether it is a continuing care retirement community, an assisted living long-term care facility, a nursing home, or at-home care. In addition, there may be a lapse in income where one’s retirement benefits or long-term care insurance benefits have not yet started, but their cash flow has stopped.

Short-term loans can help cover this gap until an individual’s finances are working as needed. One type of short-term loan, called a bridge loan, is designed for these types of situations (discussed below).

Types Of Short-Term Loans

There are different types of short-term loans; however, we will look at 4 common short-term loans and briefly explain how these loans may help pay for various needs.

Emergency Loans

Emergency loans are well suited to individuals who need cash quickly. If an individual has an injury that their insurance does not completely cover or if a caregiver finds that they need to access respite care unexpectedly, an emergency loan may be ideal.

Lines Of Credit

A personal line of credit is one of the most desirable forms of credit when it comes to short-term loans. Lines of credit are similar to credit cards in that an individual is approved for a certain credit limit and interest is charged only on the amount of credit used.

For example, if an individual is approved for a $1,000 line of credit but does not use any of this credit, they will not be charged any interest, and they will owe nothing to the lender. However, there is $1,000 available for spending on their line of credit. If a caregiver used $500 of this line of credit to pay for respite care, they would owe the lender $500 plus interest from the date they borrowed this money from their line of credit.

Bridge Loans

bridge loan provides a financial “bridge” over gaps in one’s income. For example, if an individual begins to transition into senior living, but their senior living benefits do not begin for another month, they may be eligible for a bridge loan to cover their long-term care services expenses for that month until their regular benefits begin.

Bridge loans typically have higher fees and interest rates than other short-term loans; however, they are convenient and may help meet unexpected cash flow difficulties.

Payday Lenders Loans

Payday loans are designed for individuals with bad credit. Payday lending has much higher interest rates and fees than other loans and, as a result, should only be considered a last-resort option.

To be eligible for a payday loan, an individual often simply has to provide proof of regular income in the form of a pay stub to payday lenders. It is important to be extremely cautious with payday lending as short-term debt, as it may cause more financial problems than they help solve. If you have bad credit, payday loans may be your only option, but exhaust all other avenues before taking this step. Debt consolidation loans may be a worthwhile consideration before resorting to payday loans.

Where To Find Short-Term Loans

As discussed above, an individual may use short-term loans to pay for respite care, rehabilitation care, and senior living expenses as well as other expenses.

So, where does an individual go to obtain a short-term loan? Short-term loans may be available from various sources, including banks, credit unions, lending companies, family members, and friends.

Banks And Credit Unions

Applying for a loan with one’s current bank or credit union may be a good option, and these institutions may be more willing to offer favorable interest rates and repayment terms if an individual’s accounts are in good standing. Aside from visiting one’s bank in person, most banks allow an individual to apply for small personal loans online and often over the phone.

Lending Companies

There are several lending companies that offer short-term personal loans for small amounts. These companies do not usually allow in-person applications; however, one may apply online or over the phone in most cases.

One may want to consider a few lending companies, including Prosper and Elderlife Financial. Both companies accept loan applications online as well as over the phone.

Family And Friends

Approaching family and friends as borrowers may be an uncomfortable and sensitive subject that needs to be addressed at the right time and in the right way; however, it may be beneficial for both parties involved. It is important to keep in mind that borrowing money from family or friends may create tension and strain relationships, particularly if loan repayments are late or missed. It is wise to carefully consider whether this option should be used as a source of short-term funds.

Make A Payment Plan

Before approaching a family member or friend to borrow money, it is recommended that an individual consider how much money they need to borrow, how much they can afford to repay and how often, and when the loan will be repaid in full. Being clear and honest about these things can lay the foundation for a good borrowing experience for both parties involved. Once funds are advanced, it is crucial that both parties adhere to the repayment schedule and any other terms that were previously agreed to.

Agree On The Interest Amount

If a family member or friend offers a no-interest loan, that is a great option that should not be taken for granted. However, it is best to assume that one will be repaying a loan with interest unless otherwise indicated. When discussing repayment terms, be sure to ask what interest rate your family member or friend would like to apply to the loan and then ensure this is repaid as agreed to.

From a tax perspective, if a lender offers a loan over $14,000, the Internal Revenue Service (IRS) requires that the lender either charge interest on the loan amount or have the loan subject to the gift tax. Please see the information provided here for current short-term interest rates set by the IRS.

Sign An Agreement

Although it may seem strange to draw up an agreement when borrowing money from family and friends, it is highly recommended. A written agreement helps clarify what both parties agreed to and often causes individuals to feel more responsible for meeting their obligations. It may also be used for legal purposes, although this is not usually the intent.

To prepare a written agreement, simply draft a document that clearly states the following:

  • Names of the borrower and lender
  • Date of the loan
  • Loan amount
  • Interest rate
  • Amount of loan repayments
  • The frequency of loan repayments
  • Date the last payment is due
  • Other terms that have been agreed to

For free, various loan agreement contracts and templates may be found online or through websites like Nolo for a small fee.

What Does A Short-Term Loan Cost?

The cost of a short-term loan will depend on a number of factors. An individual’s credit history, credit score, current long-term debt and assets, and the loan amount will all affect the repayment amount, frequency of repayments, interest rate and other fees that may be charged.

To get a better idea of the costs of a short-term loan, there are different online loan calculators, such as the one found at Calculator.net. To determine the borrowing costs of a loan, simply enter the loan amount, the loan term, and the annual percentage rate (APR). The repayment amount will then be calculated, including the total interest paid and the total amount of money paid over the life of the loan (principal and interest).

Pros And Cons Of Short-Term Loans

There are different pros and cons associated with short-term loans. Here are some you may want to consider:

Pro: Get Your Funds Quickly

The application process for short-term loans is usually online or over the phone, and the decision happens very quickly, sometimes within 24 hours. This means you could get the funds you need in a matter of days. The application process often takes much longer with more traditional loans through banks.

Pro: Shorter Terms

Having debt can be stressful, so it is ideal if one can pay off long-term debt as soon as possible. Short-term loans allow an individual to pay off a loan quickly by offering terms as short as 90 days.  

Pro: Poor Credit May Be Okay

While having a good to excellent credit history is desirable, it is not always realistic. Getting approved for any loan may be difficult if an individual needs a loan but has poor credit. Fortunately, getting approved for small, short-term loans is often easier, even with poor credit.

Con: More Frequent Payments

Because the term on a short-term loan is shorter than the term on a traditional long-term loan, an individual is usually required to make payments more frequently. Most short-term loans have monthly payment terms; however, weekly or even daily repayment terms are possible, which can be a strain on cash flow.

Con: Higher Interest Rates

Because lenders of short-term loans are more willing to approve people with poor credit, interest rates on these types of loans are often higher to offset the risk to the lender. Lenders recognize that individuals with poor credit are less likely to be approved for loans with other companies, so they can charge higher rates.

Alternatives To Short-Term Loans

If an individual needs to pay for respite care or rehabilitation but do not want to consider a short-term loan, there are other options.

Withdraw From Savings

This should ideally be the first option an individual considers, even before considering a short-term loan. Although it may make an individual uncomfortable to withdraw funds from a savings account that they have worked so hard to build up, it is important to keep in mind that one purpose of a savings account is to provide funds for unexpected needs.

Using funds from one’s savings will also help save money because there are no interest costs to pay. When the time is right, the amount withdrawn from savings may slowly be built back up again if desired.

Ask Family And Friends

If an individual is not comfortable borrowing money from family and friends, as discussed earlier, another option is to simply ask family or friends if they would be willing and able to help financially.

If an individual chooses to help someone they care about financially, this may actually strengthen the relationship between the two parties — they may feel more invested in the life of the person they helped and the person receiving the help would naturally be grateful for the assistance.

Request A Pay Advance From Your Employer

Another option to consider is to ask an employer for a pay advance. This is not a loan; one simply asks to be paid early to meet unexpected needs. If an employer is willing and able to do this, it may be a wise alternative to a short-term loan.

How To Select A Lender

Choosing the right lender is very important. As you consider a short-term loan to pay for long-term care services, here are some things to keep in mind.

Know Your Credit Score

Whether your credit score is great, poor, or somewhere in between, it is important that you work to improve your credit rating if it is weak. The higher your credit score is, the more likely lenders are to work with you. In addition, an individual with a good credit score has more negotiating power and may receive more than one loan offer, so they may choose the loan that has the most favorable terms that best meet their needs.

A person is entitled to one free copy of their personal credit report per year. The only website federally directed to issue free credit reports is AnnualCreditReport.com which collects information from the 3 credit bureaus (Equifax, Experian, and TransUnion). You may also call 1-877-322-8228. Checking your own credit report does not affect your credit score.

Here are a few tips for improving or maintaining a good credit score:

  • Check your credit report every 12 months
  • Pay all your debts on time every month
  • Pay off as much of your debt as possible
  • Keep old debts on your credit report to show you have a longstanding credit history and can repay the loan responsibly
  • Do not enter into any new debt that is not necessary

Compare Rates

Be sure to spend some time researching interest rates online and with your local lenders and then compare rates. The lower the APR, the less interest you will pay for the loan.

Also, when speaking with lenders, let them know what other rates you have found that are favorable. This may be particularly effective in securing a short-term loan with a low-interest rate if you have an excellent credit history and credit score.

Ask Questions

Do not hesitate to ask lenders plenty of questions about their loan products and interest rates. Be sure to inquire about all fees, additional costs, and loan requirements in addition to the principal and interest payments. Also, ask the lender if there are any other “fine print” details and, if so, what they are. If you are working with a legitimate lender, they should provide you with all this information upfront.

Check The Better Business Bureau (BBB)

For a more balanced review of a commercial lender, be sure to review the information provided about the company on the Better Business Bureau’s (BBBs) website. In addition to seeing the company’s overall letter grade, one can see complaints from clients filed through the BBB as well as any response from the company.

Short-Term Loans For Respite Or Rehabilitation Care FAQs

1. What types of health care are covered by short-term loans?

Short-term loans may be used for anything the lender approves the loan for. Some short-term loans are designed for specific needs such as respite care, rehabilitation therapy, or senior living.

2. I have poor credit. Can I still get a short-term loan?

You may still be able to get a short-term loan with a low (poor) credit score; however, lenders usually quote higher interest rates if one’s credit score is low. In most cases, rates are determined in part by one’s credit score.

3. What’s the best type of short-term loan?

There is not one type of short-term loan that will meet all needs. Each individual’s situation and finances is unique. The best loan will depend on many factors, including one’s financial situation and credit history, how much money one needs, and how quickly one can repay a loan.

4. When should I get a short-term loan?

Many financial planners would agree that loans should be a last resort. After one has used any savings they may have and considered other possible options, a short-term loan may be necessary if an individual finds themselves short of funds and needs money soon.

5. How do I get a short-term loan?

You can apply for a short-term loan online or over the phone with most lenders, including Prosper and Elderlife Financial. Your local bank may also offer short-term loans.

Another option is to consider borrowing funds from a family member or friend, as discussed earlier.

6. Is there an alternative to short-term loans?

Yes, the first option is to use any savings you may have or even a portion of your savings. You may also consider asking your employer for a pay advance or asking a friend or family member if they would be willing and able to help you financially.

7. How do I know which lender to choose?

After you have determined how much you can afford to repay the loan each month and how quickly you can repay a loan, you will want to compare rates of different lenders, check and compare BBB ratings and reviews, and speak with potential lenders about their products and rates.

8. Can I change my mind after I’m approved for a short-term loan?

Yes, you can change your mind any time you like as long as you have not signed any paperwork. Before signing any agreements, read the terms and conditions and ask any questions that come to mind. Taking out a loan is an important decision that you do not want to rush.

9. I think I might have been scammed. What do I do now?

If you believe you may have been the target of a short-term loan scam, be sure to act quickly and follow these steps:

  • Contact your bank to freeze your accounts and debit cards to prevent any money from being withdrawn.
  • Contact the 3 credit bureaus to place a fraud alert on your credit information
    • Equifax: file online or by calling 1-888-766-0008
    • Experian: file online or by calling 1-888-397-3742
    • TransUnion: file online or by calling 1-800-680-7289
  • File a police report with your local police station