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There are many ways to take out a small loan, but some are more costly or harder to get than others. Knowing where to look, what to look for and how to get one is especially important if you need money fast for unexpected expenses.
What Is a Small Loan?
Nothing formally defines the amount of a small loan, but it's generally considered to be one that's $3,000 or less. Small loans tend to be personal loans used to cover emergencies, such as medical bills, fixing a vehicle, home repairs or covering necessary household expenses. In contrast, people may look for larger loans with a different type of purchase or purpose in mind, such as debt consolidation.
Because less money is on the line, it may be easier to qualify for and repay a small loan. You may, however, have fewer options and a harder time finding a small loan with favorable terms. This is because some financial institutions have decided it doesn't make financial sense for them to offer small loans—there's a similar amount of work required to process the loan request, but a lower return on their investment.
Where Can I Get a Small Personal Loan?
While some lenders only issue larger loans, there are still many places you can turn to for a small personal loan:
- Online lenders: Many online-only lenders specialize in unsecured personal loans you can use for almost anything. Often, it's easy to see if you can prequalify for a loan. If you do, it may only take a few business days to complete the application and get the funds transferred to your bank.
- Banks and credit unions: Some traditional banks and credit unions also offer personal loans. Some institutions let you start the application online but require you to visit a physical branch before releasing the funds. Some credit unions also offer payday alternative loans (PALs), that may help you borrow a small amount of money even if you don't have good credit.
- Peer-to-peer (P2P) lenders: These online lending platforms match borrowers with investors willing to lend funds. They often offer low interest rates and a quick application process. Not all P2P platforms provide small loans; Upstart and LendingClub are two that do.
- Friends and family: Borrowing money from friends and family can strain relationships, but can be a good option if someone close to you has the means and the willingness to lend you some cash. Make sure you hash out an agreement that outlines how and when you'll repay the loan in advance.
- Pawn and title loans: If you have something of value or own a vehicle, you may be able to get a pawn loan or an auto title loan. But proceed with caution, as these loans tend to charge a high interest rate and may cause you to lose your property or vehicle if you can't repay the loan.
- Payday loans: Payday loans may be an option for very small loans ($500 or less), but high fees make them a costly choice. Only consider these loans as a last resort if you don't have access to credit elsewhere.
- High-rate installment loans or lines of credit: Some online and branch-based lenders offer installment loans or lines of credit with high interest rates (60% to 199%) or high fees. While these are cheaper than payday loans, they should also be a last resort as the high interest rate can make them difficult to repay.
As you compare your small loan options, you'll want to consider the lenders' requirements and terms. These can help you narrow down your options and figure out which loan type will be a good fit:
- Borrowing fees: Lenders may charge an origination fee, which could either be a fixed amount or a percentage of the borrowed amount. The fee may be taken out of your loan amount, which you'll want to consider when you make your loan request. A few lenders may also charge an application fee, but those aren't as common.
- Loan limits: Some lenders may be unwilling to issue a loan as small as the one you're seeking, which can cause you to overborrow. While you can often repay part or all of the loan early without paying a penalty, borrowing a larger loan than you need can result in paying an unnecessarily large origination fee.
- Annual percentage rates: The loan's annual percentage rate (APR) can help you understand how much you'll pay for the loan based on its fees and interest rates. Your interest rate may depend on the lender, your creditworthiness, the loan amount and the repayment terms. Some loans, such as payday loans, don't have an APR as they only charge a fee—not interest. However, you can search for a calculator to convert the fee amount to an equivalent APR to better compare loan options.
- Secured and unsecured options: Small loans may be either secured or unsecured. Secured loans can be easier to get, but you'll need to pledge collateral that the lender can take if you don't repay the loan. Unsecured loans may be less risky, but may be harder to get or have higher interest rates.
- Repayment terms: You may have several weeks to several years to repay your loan. Longer terms can be more manageable as you'll have lower payments, but you might wind up paying more interest overall.
How to Apply for a Small Loan
The application process can vary depending on the lender, but the process is often similar whether you're trying to borrow $1,000 or $10,000.
Many applications will ask you to share some basic information about yourself, including your name, address, date of birth, Social Security number, employment status and overall income. You may also need to verify your information and income by sharing copies of a government-issued ID and pay stubs or tax returns.
Most personal loan lenders will want to check your credit history and credit scores and use them to determine your loan offer, along with the information you included on your application.
Once you get approved for a loan, you can still decide whether to accept or decline a loan offer. If you accept the offer, you may be given a check, cash or have the money transferred to your account in a matter of days.
How to Get a Small Loan With Bad Credit
Depending on how bad your credit is, your options may be limited. Payday, pawn, title or high-interest installment loans or lines of credit might be the only loan types you can qualify for on your own, none of which are very appealing. These often either don't require a credit check or have a low credit score requirement, but tend to charge high fees and interest rates.
When you're dealing with an emergency, a high-cost loan may still be the best option. If you can wait, you may want to focus on improving your credit and applying when you have a better chance of getting approved for a loan with better terms. If someone close to you is willing to help you out, they may be willing to lend you money or act as a loan cosigner, which can help you secure a loan with better terms.
Small Loan Alternatives
If you have good credit or better, a small personal loan may be the most cost-effective way to cover your expenses. But if you don't, loans might not be the best way to borrow and you might consider looking into other options.
For instance, credit card debt can be expensive to repay but may offer a lower interest rate than what you'll pay for a personal loan. Using your credit card also means you won't need to wait for the money to be disbursed or pay an origination fee.
You could also look into opening a new card that has a promotional 0% annual percentage rate (APR) offer on purchases, which may let you borrow money without paying any interest during the promotional period.
Other options include:
- Negotiating with creditors: You could ask your creditors if they offer any hardship programs, which could temporarily lower or pause your payments. These can help you free up money to cover an emergency expense.
- Help from nonprofits: Look for local and national organizations or programs that could help you find resources or that offer direct assistance. You may be able to get help paying for necessities, such as utilities, rent, medical bills, medications and food.
- Credit counseling: Nonprofit credit counseling organizations can connect you with a trained counselor who can help review your finances and explain your options. If you're struggling with unsecured debt, such as credit card bills, the counselor may be able to negotiate with your creditors.
- Get early access to your pay: You may be able to get an advance on your next paycheck by asking your employer or using an early payday app. Some options limit how much you can receive, however, and it might not be enough to cover a large expense. It could be a good option if you need a small loan.
In the end, any method you can use to increase your income or decrease your expenses could help you get the money you'd otherwise receive from a small loan—while at the same time sparing you the expense of fees and interest.
Compare Options Without Hurting Your Credit
If you're looking for a small loan or a new credit card with an introductory 0% APR promotion, you can compare offers from Experian's partners using Experian CreditMatch™ for personal loans and credit cards. You can filter results based on your preferences and needs, and you may be able to get prequalified for a loan with a soft credit inquiry—which won't hurt your credit.