How To Get A Small Personal Loan

Small Personal Loan

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Are you in need of a loan for $5,000 or less? There are many reasons why someone may need access to smaller loans, such as car repairs or medical bills. Taking out a small personal loan can help build credit and establish a foundation for other asset-building loans, such as mortgages and auto loans.

There are plenty of options available for those in need of small personal loans. Credit unions are a great choice for loans of $500 or less, while online lenders can provide more substantial amounts of cash. Whatever your needs may be, there is likely a loan option out there that can help.

What is a small personal loan?

Small personal loans can be a great way to save money on interest when you need a small amount of money. They usually have a principal of less than $5,000, shorter repayment periods, and fixed interest rates. A small personal loan can help you save money on interest when you don’t need a large amount.

As of 2021, the total amount of unsecured personal loan debt owed by Americans is estimated to be $133.17 billion. This figure represents a 5 billion dollar increase from the previous year, which can likely be attributed to rising costs of living expenses such as gas and rent. The average personal loan debt amount per person is $17,064.

What are small personal loans used for?

Small personal loans can be extremely helpful when you need money in a hurry. The key is to find the lender that offers the best rates, terms, and fees for your specific situation. Some lenders may also have limits on how small of a loan you can take out. 

Small personal loans can be used for just about any purpose unless the lender states otherwise. Because of this, people often use small loans for things like:

  • Car repairs
  • Debt consolidation
  • Medical expenses
  • Unexpected expenses
  • Vacations
  • Weddings

Personal loans can be useful when you need money and can’t save or budget for something.

Where to get a small personal loan

How To Get A Small Personal Loan 1

There are several options for obtaining a small personal loan.

Major banks

Banks offer small loans of around $2,000 which require a processing fee to be paid. The interest rates for these loans vary depending on the borrower’s income and credit score. Having an existing relationship with a bank can make you eligible for better interest rates.

  • Pro: The bank may be willing to give you more time to repay your loan.
  • Con: Small amounts of loans may be less common in big banks.

Credit unions

Different financial institutions offer loans of varying amounts, with some as low as $500. Oftentimes, these loans come with lower interest rates and more favorable terms than those from major banks. To obtain a loan from a credit union, you will typically have to become a member. However, existing members may be able to use their deposits at the institution to expedite the approval process.

  • Pro: For low rates on loans of $500 or less, this may be your best option.
  • Con: You may be required to have a membership for the loan.

Payday loans

Loans that are due on your next payday are called Payday loans. They offer a small amount of money for a short time in exchange for access to the borrower’s deposit account via a post-dated check or electronic funds authorization. The interest rates on these types of loans are usually quite high, sometimes even 1,000% or higher, and repayment is often required in one lump sum. Many borrowers have trouble repaying these types of loans and become trapped in debt.

  • Pro: You can get money quickly.
  • Con: High-cost loans can be difficult to repay, trapping borrowers in a cycle of debt.

Online lenders

Many reputable lenders offer loans starting at $1000, but their interest rates may be higher. Borrowers can use the lender’s website tools to determine the rates they qualify for. The rate you receive is typically based on your credit score and credit history. Some lenders also consider job status and education when determining your interest rate.

Here are some reputable online lenders to choose from:

LenderMinimum loan amountAPR rangeFees
PenFed Credit Union$6007.74% to 11.24%Late payment fee: $29
Returned payment fee: $30
Upstart$1,0005.60% to 35.99%Origination fee: up to 10% of the loan amount
Late payment fee: the greater of $15 or 5 percent of the past-due amount
Returned payment fee: $15
Paper statement fee: $10
Upgrade$1,0007.96% to 35.97%Origination fee: between 1.85% and 8.99% of your loan amount
Late payment fee: up to $10 once your loan payment is more than 15 days past due
Returned payment fee: $10
Rocket Loans$2,0008.416% to 29.99% (with autopay)
7.727% (with autopay) to 29.99%
Origination fee: Up to 7%of the loan amount
Late payment fee: $15 if your loan is more than 10 days past due
Returned payment fee: $15
Avant$2,0009.95% to 35.99%Administration fee: up to 4.75% of the loan amount
Late payment fee: $25 if your loan is more than 10 days past due
Returned payment fee: $15

PenFed Credit Union

Need cash fast? PenFed Credit Union has you covered with personal loans that can be funded in as little as one to two business days. Plus, there are no origination or prepayment fees to worry about. Joint applications are also accepted, so you can team up with a co-signer to maximize your chances of approval or get more favorable loan terms.

Upstart

Upstart is proud to offer personal loans with interest rates that are lower than the average for its competitors. Even people with a lower credit score could get approved for a loan, as the lender also takes into account employment and education history to determine whether someone is a good candidate for financing. Usually, those who qualify for a loan receive an instant lending decision, and they receive loan proceeds within one business day.

Upgrade

Loans from Upgrades are flexible and can be tailored to meet the needs of borrowers with different financial backgrounds. Low fixed interest rates make these loans accessible and easy to apply for, and there is no impact on your credit score. You can select a monthly payment and loan term that works for your budget, and get your loan proceeds in as little as one business day.

Rocket Loans

Applying for a loan with Rocket Loans is quick and easy, with real-time electronic verification of your identity and income information. You can check your rate without formally applying, which won’t impact your credit score. And for select customers, we offer same-day funding. Plus, there’s no prepayment penalty should you decide to pay off the loan early.

Avant

Avant is committed to helping people with all types of backgrounds get the loans they need. Whether you have had credit problems in the past or simply have a lower credit score, we can help. Checking your eligibility for a loan takes just minutes, and you could have the funds in your bank account in as little as one business day.

What is a small business loan vs a personal loan?

How To Get A Small Personal Loan 2

There are two main types of loans that people can take out – business loans and personal loans. Business loans are taken out to help with expenses related to starting or running a business, whereas personal loans can be used for anything the borrower needs. In some cases, it may make more sense to use a personal loan for business expenses instead of taking out an actual business loan.

The reasons for this could be that you don’t want to put any personal assets at risk, you want to build up your business credit or you need large sums of money to get your business off the ground.

Personal loans can be beneficial for new businesses that haven’t yet established credit or may have difficulty getting approved for business loans. Personal loans can also be useful for borrowing smaller amounts of money, without using collateral or need funds quickly. By using an amortization calculator, you can determine the overall costs of the loan and compare different types of loans to find the best option for your needs.

How can you qualify for a small personal loan?

Small personal loans that don’t require collateral are called unsecured loans. Your credit score and income history will affect whether you qualify, how much you can borrow, and what interest rate you’ll pay.

Generally, you need a credit score of 580-669 to qualify for an unsecured loan. But the higher your credit score, the better your chances of being approved or getting a low-interest rate.

Lenders take your debt-to-income ratio into account when considering loan applications. This ratio is calculated by dividing your monthly debt payments by your gross monthly income. Those with a higher debt-to-income ratio may have difficulty repaying a small personal loan and may be denied or pay higher interest rates.

You can improve your chances of being approved for a small personal loan by improving your credit score, if possible.

Can you get a small personal loan with bad credit?

Small personal loan costs are the lowest for those with good to excellent credit scores. However, plenty of lenders are willing to extend personal loans to people with lower credit scores at higher interest rates.

Credit scores are just one factor that lenders consider when approving a loan. Other factors, such as employment history and income, may also be considered. Even with a low credit score, there are still options available. Some lenders may allow for a co-borrower or co-applicant, which can help lower the overall cost of the small personal loan.

What are the alternatives to small personal loans?

How To Get A Small Personal Loan 3

There are a few alternatives to using a personal loan to cover unexpected expenses. You could consider using a credit card, borrowing from friends or family, or taking out a short-term loan.

  • Credit card: There are many convenient options for borrowing money, but usually a credit card will have a higher interest rate than a personal loan. So only use a credit card if you’re able to pay the balance in full before interest accrues.
  • Borrow from a relative or friend: There are a few things to consider when asking for a loan from family or friends. First, be clear about the terms of the loan and get the agreement in writing. This will avoid any confusion later on.

Before you apply for a loan, research different lenders and compare fees. Make sure you understand the repayment schedule and know exactly how much the loan will cost you. Consider whether the interest rate is affordable and whether you can comfortably make the payments. Loans of less than $2,500 may be considered affordable only if they have low-interest rates, offer three months of amortization, and do not have large balloon payments due at the end of the loan term.

Bottom line

There are many ways to get a small personal loan, including from major banks, credit unions, and online lenders. The interest rate and terms you receive will depend on your credit score and other factors, like your debt-to-income ratio. You’ll likely get the best deal by shopping around and comparing offers from multiple lenders.

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