Short-term loans have higher interest rates because they yield less interest for lenders and they carry a higher risk of loan default. Because short-term loans generally come in lower amounts than long-term loans and because the interest repayments are spread out over years, the lender stands to make a profit even at a lower interest rate. Even though the rate may be lower for long-term loans, the amount of interest that accumulates often is higher than that for short-term loans.
Another reason short-term loans have higher rates is that the longer repayment term puts the lender at greater risk of having the borrower default. More things can happen to borrowers over a long period of time, raising the risk of the borrower going out of business, going bankrupt or otherwise becoming unable to repay their loan.
Moreover, because short-term loans are easier to qualify for than long-term loans, borrowers often have lower credit ratings. This further increases the risk of default for lenders.
However, although these factors tend to promote higher interest rates for short-term loans, not all short-term loans have especially high interest rates. Low-interest short-term loans may be available to customers with exceptional credit.