Look for a small loan as carefully as you would a large loan, Lenders usually have minimum and maximum amounts that they are willing to lend. If you check the best personal loans from The Ascents, you will notice that the minimum loan offered is $ 1,000 and the maximum is $ 100,000. Of the eight lenders on the list, only one allows loans as low as $ 1,000.
The minimum varies by lender, sometimes in thousands of dollars. This fact highlights the importance of comparing rates with several different lenders. By comparing prices, you are more likely to get a quote that is closer to the amount you actually need to borrow. And if your credit score is high enough, you should have no trouble qualifying.
Choosing the right lender
When shopping for a personal loan, the smart thing to do is to compare all the costs associated with a loan. In addition to the interest rate, some lenders charge:
- An origination fee
- Late payment charges
- A prepayment penalty
Let’s say you only need to borrow $ 1,500 and lender n. 1 offers a minimum loan amount of $ 1,500. So far so good. However, if the lender n. 1 charges an 8% upfront fee and a 2% prepayment penalty, may not represent the best offer.
What if Lender # 2 offers a minimum loan amount of $ 3,000, but their interest rate is lower and they don’t charge any origination or early settlement penalties? It may make more sense to borrow from a lender with a higher minimum loan amount, repay immediately what he does not need, and take advantage of his best terms to repay the rest of the loan.
Remember, even if you pay off half of the loan right away, your monthly payments will remain the same. However, making that monthly payment with a now reduced balance will ensure that your loan is paid off early.
Advantages of a small loan
It is wise to apply for a small loan. Getting a small loan is a good way to build credit or increase your credit score. In addition to increasing your credit when you repay the loan as agreed, a small loan allows you to cover a financial obligation without borrowing more than necessary.
Read the fine print
As with any loan, it pays to understand what you are signing up for. Small loans are less attractive to lenders than large loans for one important reason: a lender does not earn as much in interest. For that reason, some lenders charge all kinds of junk fees to offset the interest they would have earned if you had borrowed more money.
Other small loan options
If you’ve shopped with lenders but haven’t had much luck finding a loan that works for you, consider these options:
Personal bank or credit union
Any financial institution with which you have an established relationship can check your banking history and have a clear idea of whether you will be able to repay the loan. Also, because they want to keep you as a customer, or in the case of a credit union, as a member, they are more likely to overlook small credit problems.
0% credit card promotional rate
Before deciding on a personal loan, look for alternatives, such as a credit card. In an effort to attract new customers, credit card companies sometimes offer 0% promotional rates. These rates typically last 12 to 18 months. So if you have a strong credit score, you may be able to get a 0% APR credit card that offers interest-free payments for up to a year or more.
Family and friends
If the amount you need to borrow is small and you have a reputation for paying off debts as promised, it wouldn’t hurt to borrow from someone close to you. If they agree, write a contract that clearly describes how much you are borrowing, if you are paying any interest, how much the monthly payments will be, and when the loan is due in full. The bottom line is: the next time you need a small loan, don’t just look at the lowest amount you can borrow. Find the lender that offers the funds at the lowest final price. And consider other available options.