What is a small loan?
Published February 03, 2022
Amounts of $2,500 or lower are categorized as small loans. They are different from personal loans, which amount to around $50,000 or $100,000. There are even options to get smaller unsecured loans of $300 or $500.
Small loans can be hard to secure as lenders do not make a significant profit on less than $1,000. Some predatory lenders intentionally charge excessive interest rates and implement unfair and financially abusive terms.
According to many consumer advocates, the best APRs of loans generally range from 3% to 36%. It is important to review and compare lenders before borrowing so that the loan alleviates your situation rather than worsen it.
Where can I get a Small Loan?
Listed below are some sources where you can source small loans-
Many major banks do not offer personal loans, and those that do tend to offer them on a larger scale. The two major banks listed below, however, offer smaller loans amounting to $1,000 or less -
- Bank of America
- You need to be an existing customer of this bank to qualify. Their Balance Assist program offers loans ranging from $100 to $500. It has a three-month repayment term and a flat fee of $5.
- U.S. Bank
The U.S. Bank’s Simple Loan program allows customers to borrow between $100 and $1,000. Carrying a fee of $12 to $15, the loan comes with an APR of 77% to 81%. Although it is an expensive option, it is comparatively cheaper than payday loans or the sort.
Created to serve their members, credit unions are not-for-profit institutions that tend to assess borrowers’ relationships with the union to qualify and determine their creditworthiness.
Federal credit unions offer payday alternative loans, usually between $200 and $2,000, to those with low credit scores. These unions can levy a maximum annual percentage of 18% for personal loans and 28% for payday alternative loans.
The starting range of loan amounts by online lenders may come at $1,000 or $2,000. There are also others that offer higher starting amounts.
A popular feature of online lenders is pre-qualification, where they request basic information like name, employment-related information, desired loan amount, the reason for borrowing, and other details. After filling out the application, they present the interest rate and the repayment term.
Best Small Loans of 2022
It is hard to find trustworthy and reliable lenders, especially if it’s your first time doing so. We have listed some of the best small loan lenders in the business below to help you get started.
How to apply for a small loan
If small loans seem to be your best bet, you can take the following steps -
- Review credit and debt -
It is important to check your credit score before applying, as it can allow you to improve and increase your chances of qualifying. You should also calculate the debt-to-income ratio as lenders use it to check how much of your income goes to other parties. Most lenders prefer it to be under 40%.
- Pre-qualify -
By pre-qualifying, you can see details of what your monthly payments could look like and can make you plan ahead. Comparing the interest and repayment terms may also help you recognize your compatible lender.
- Gather documents -
Lenders will require you to provide them with information like your Social Security number, pay stubs, W-2s, and more. Keeping these documents handy will hasten the process.
- Submit -
You can do this part of the process in person with credit unions and local banks. You can also submit online applications. After approval, you can expect funding within a day or a week.
Alternatives to small personal loans
Depending on your circumstances, loans may seem like a great option, especially if it’s an emergency. However, it would be wise for you to consider other alternatives before opting for a small loan.
Here are some options you can consider -
- Try seeking assistance from local charities, nonprofits, or religious associations for help with groceries, bills, food, gas, etc.
- Another option can be borrowing against your paycheck with a loan application. It is an affordable way to borrow a few hundred dollars but be sure to repay this amount by your next payday.
- Create a lending group with your trusted ones or borrow money from a family member or friend.
- Side gigs are an excellent way to make extra money. You can consider selling clothes, walking dogs, babysitting, etc.
Beware of predatory loans
Predatory lenders offer loans with short terms, late fees, and high-interest rates. If a prospective lender doesn’t review your credit, doesn’t state the loan’s APR, asks access to your bank account, or other unfair terms, then it is best to steer clear of them.
The current on-goings in the world have forced many of us to seek out loans. However, it is wise to plan, save or look for other options before choosing to take out loans, even if it is small. A small loan may turn out to be a good option if your credit score is healthy and the APR and the amount are low.
I have bad credit. Can I get a small loan?
There are lenders that offer loan amounts to those with low scores. However, you can simply try pre-qualifying to check your viability and other loan-related information.
Can I get a small loan with no credit?
Yes, some lenders offer no-credit-check loans. However, the interest rates for such loans can be incredibly high, and you may risk getting caught in a cycle of never-ending debt.
Is paying off a loan early bad?
Paying off a loan early won’t improve or lower your credit score. Keeping the installment loan open for the loan's entire life can help maintain your credit.