How to Get a Small Personal Loan
A small personal loan is a fast and simple way to cover surprise expenses. The funds can be turned around within a day or two, and are preferable to predatory, quick-cash advances. In this guide, we’ll go through the ins and outs and help you determine whether or not it is right for you.
We’ll Cover
- What is it?
- Options to consider prior to taking on a small personal loan
- What to watch out for
- Advantages of a small personal loan
- How to apply (including calculator)
- Application checklist
- FAQ
What is It?
These types of loans are usually between $500 and $2,500 and are unsecured. As with any kind of personal loan, they can be used for almost any purpose. People shopping for these products may use them for medical bills, a surprise car repair, or even to help stretch the monthly budget when times are tough.
They can be furnished through a bank, credit union, or alternative online lender, some of which specialize in amounts under $2,500.
For more information on personal loans click here.
The main downsides to taking such a small amount are relatively high interest rates and a potentially vicious cycle of escalating debt. Only you can determine what you’re comfortable borrowing, but there may be better alternatives.
Options to Consider Prior to Taking on a Small Personal Loan
Before you borrow, think about asking for an advance from your employer, asking for help from your church or a local non-profit, or requesting a friend’s help.
You can also consider pawning something of value. Because pawn shop loans use the item as collateral, you’ll get a relatively better interest rate and won’t need to worry about a credit check. The cash will be handed over as soon as you make a deal. Just make sure you can meet the short repayment term and are willing to risk losing the item if you can’t.
If these are not good options for your situation and you need quick access to cash, personal loans can be turned around within 24 hours and give you flexible repayment terms. As you shop around, just be careful of predatory lenders and bad products.
What to Watch Out For
In many cases, predatory products are presented to those searching for a smaller loan. You’ll want to stay clear from those advertising “no credit check required.” If a lender isn’t checking your credit for an unsecured loan, expect unreasonably high interest rates and additional fees.
Be especially careful of cash advances. Because these typically need to be repaid within a couple of weeks, lenders can get away with ridiculous charges and APRs up to 1000%. Even though they may not look unmanageable in the short term, read the fine print. The terms of the agreement are already bad enough and you’ll be severely penalized if you can’t repay on time.
Look out for fees associated with small loans, which may exceed the value benefit depending on the terms. Calculate how much interest you’ll be paying over the term as well.
Now that we’ve gone through the negatives and buyer beware, here are some of the benefits of a personal loan vs. other options.
Advantages of a Small Personal Loan
The main benefit is the turnaround time. Since these products are typically used for surprise urgent expenses, many lenders work to ensure borrowers have access to funds as soon as possible, often within 24 hours.
In addition, reasonable fixed-rate options and longer repayment terms make them a much better alternative to cash advances. You can lock in an upfront rate and find terms ranging from months, to even years.
Unlike secured products, which put your assets at risk if you default, a personal loan relies on your credit history during the underwriting process. Qualified borrowers with good credit will get better interest rates, and even those with a weak score may still be able to get approved, especially for smaller amounts.
How to Apply
Use this calculator to help you figure out how much you’re comfortable borrowing. You can input the amount and repayment terms and get a quick snapshot of how much the loan may cost. Once you do that, pre-qualify with a reputable lender.
When you’re ready to apply, here is what you’ll need.
Application Checklist
- Credit score
- Government ID
- Proof of residence
- Employment and income verification including
- Proof of employment
- W-2 (or 1099)
- Pay stubs
- Bank statements
- Cosigner information (if applicable)
Here are some additional frequently asked questions to aid you as you decide whether a small loan is best for you.
FAQ
Q: What if my credit score is poor, can I still get a loan?
A: Yes, but you’ll likely have a higher interest rate. That said, it is much easier to borrow a small amount if your credit is low. Read our article to find ways to help you qualify for the best option possible.
Q: Can I use a cosigner?
A: Yes. A qualified cosigner will help you get a better rate or may even be the difference in whether or not you qualify at all.
Q: How long do I have to repay?
A: A personal loan typically has terms ranging from 2-7 years, but small amounts can have shorter terms. Be sure to calculate the interest out to see how much you’ll end up paying as you extend the repayment timeline.
Summary
A small loan may be a good option if you need quick access to funds and have no alternative cash flow to cover the expense on time. They are always a better option than payday advances and can be turned around within a day or two. Shop around to decide whether it’s the best choice for your situation.