Many people need small loans from time to time, particularly considering that more than one in five Americans has no emergency savings.
“Small” loans, sometimes called debt consolidation loans, are unsecured personal loans for less than $2,500.
Even if you have bad credit, you don’t need to turn to a predatory payday lender. These lenders will work with you to get you the help you need — fast.
Table of Contents
Best Online Lenders for Small Loans
|Credit score requirement
|Comparing offers via a lending platform
|Multiple payment options
|No interest if you repay the loan in 30 days
Best Small Loans If You Have Bad Credit
|APR rates range
|Credit score requirement
|Ease of application
|Borrowers with bad credit
|Up to $10,000
|Less than 500
|Extended lender network
|600 for peer-to-peer loans;
580 for other products
|No prepayment fees
|Best for automation
|Credit Karma (formerly SeedFi)
|No credit score needed
Best Credit Union Small Loans
|APR rates range
|Credit score requirement
|PenFed Credit Union
|Free checking accounts
|Military service members and Veterans
|10.49 to 29.49%
Disclosures: Actual interest rates, loan amounts and credit score requirements may vary based on other financial factors. Credit union membership requirements differ. Please check with multiple lenders to find the best loan for your financial situation.
Reasons Small Loans are Better Than Payday Loans
Small loans work best for emergency expenses, debt consolidation or major purchases like home improvements. Loan terms are more flexible than payday loans or title loans. You typically have at least a few months to repay.
Pro tip: Small loans may not be ideal for credit card debt since many have higher interest rates than credit cards. You must use a calculator to see whether it’s worth it and know the APRs charged by all your credit cards.
READ MORE: Risks of payday loans
There are a few things to consider before applying for a small loan. First is your credit score and history. Then make sure you are not borrowing more than you can afford and calculate all the hidden fees and penalties that may increase your loan’s cost.
Annual percentage rates — the interest rate plus all fees a lender charges — will also vary widely. Borrowers with good credit will qualify for the lowest rates. Watch out for potential hidden costs like late fees.
Consider all your options and take the time to review them so you don’t make a hasty (and expensive) decision.
READ MORE: Does debt consolidation close credit cards?
How to Compare Small Loans
Here are the most important features to compare when choosing a small loan.
- Personal loan rates
- Minimum loan amount
- Maximum loan amount
- Repayment term
- Monthly payment requirement
- Origination fees
- Credit score requirements
- Time to loan approval
- Time until loan funds are available
- Autopay discount
- No prepayment penalty
- Member FDIC
Where to Get a Small Loan
- Credit unions: Many credit unions offer loans that start at less than $1,000. Though your credit score will matter, your standing as a credit union member can offer some flex if your credit score falls short. Some credit unions offer payday alternative loans for borrowers with low credit scores. These are typically for small amounts ranging from $200 and $2,000 to borrowers with low credit scores. Credit unions cap personal loan APRs at 18% and payday alternative loan APRs at 28%.
- Banks: Traditional banks typically prefer borrowers with excellent credit. However, some banks are introducing small-dollar loans for clients. Most financial institutions require customers to open a bank account for several months before being eligible for loans.
- Online lenders: These don’t usually have physical branches you can visit. Most offer online applications and have more flexible lending requirements than banks. Many offer matching services so that you complete one application and it will be presented to multiple lenders, so you don’t have to submit multiple applications.
To check your APR, you may complete online applications to prequalify with multiple lenders to compare the best offers. However, prequalification won’t affect your credit score.
Pro tip: Credit unions offer an array of services that would be available from a bank but not necessarily from an online lender. This includes checking accounts, savings accounts and debit cards.
To learn more about the different types of loans available, check out this video:
Steps to Take to Get a Small Loan
- Review your credit reports from all three credit bureaus and look for errors
- Learn your credit score
- Compare lenders
- Consider the loan purpose
- Calculate your debt-to-income ratio
- Get prequalified
- Calculate the loan’s total cost
- Complete the loan application
- Wait for approval
Pros and Cons of Small Loans
- Fast funding — some loan proceeds are available by the next business day
- Fixed interest rates
- Fixed payments
- No collateral is required
- Simple application process
- Credit scores don’t always matter
- Better alternative to payday loans
- High-interest rates
- Fees for late payments
- Possible origination fees
- Possible prepayment fees
- Eligibility is more demanding than a payday loan
- Late fees
- There may be better ways to borrow with lower interest rates
Beware of Predatory Lenders
- Exceptionally high-interest rates: While loans for bad credit borrowers can have higher-than-average interest rates, most reputable lenders will cap the APR at 36%. Predatory lenders will charge interest rates over 100% APR. However, some bad-credit loans can go as high as 60% APR.
- Short repayment terms: Most borrowers realistically can’t afford to repay their loan in total in two weeks.
- Simple application process: If you only need a paystub, bank account, ID, and Social Security number, the lender may not be worried about your ability to repay the loan.
- No credit checks: Creditworthiness is usually an essential factor when borrowing. If the lender doesn’t care about your financial history, that’s a red flag.
Using a payday loan to get you to your next paycheck is a short-term financial solution that may have long-term negative results.
Other Loan Options (That Aren’t Payday Loans)
- Credit card cash advance
- Cash advance app
- Peer-to-peer lending
- Secured loan
- Personal loan
- Payday Alternative Loan (PAL)
The Bottom Line
Ultimately, getting approved will come down to your creditworthiness. Many lenders will loan money to borrowers with credit scores below 630, but those applicants will have to pay significantly higher interest rates.
However, a small loan from a reliable lender will almost always be a better option than a payday loan.
A hard pull occurs when you apply for a new loan or credit card. A soft pull occurs when you check your credit. It also counts as a soft inquiry when credit card companies or lenders check your credit independently to determine your creditworthiness for a loan or credit card offer.
A hard pull will knock a few points off your credit score and signal that you have given someone permission to check your credit to process a credit card or loan application. Soft inquiries don’t harm your credit score.
According to FICO, a new hard credit inquiry will only drop your credit score between one and five points. While a hard inquiry stays on your credit report for two years, it only impacts your score for one year.
Everyone wants to keep their money secure and insured. That’s why the words “Member FDIC” are so important. Member FDIC indicates that the federal government covers your bank. A Federal Deposit Insurance Corp. (FDIC) insured account is a bank account at an institution where deposits are federally protected against bank failure or theft. The FDIC is a federally backed deposit insurance agency where member banks pay regular premiums to fund claims. The maximum insurable amount is currently $250,000 per depositor, per bank.
While non-U.S. citizens are eligible for personal loans, they’ll need to meet specific requirements that vary from lender to lender. Lenders will be looking to see that you have a green card or valid visa that extends at least three years or at least the life of the loan. But these loans will likely be offered by individual banks and lenders that provide loans geared toward foreign visitors looking to buy a vacation home or rental.
Still, many banks and lenders will not issue a loan to non-citizens without a cosigner, but it is still possible. There are exceptions, such as Stilt, which enable U.S. immigrants to get a loan even if they have no credit history or Social Security number by using your Individual Taxpayer Identification Number (ITIN)
The few banks that provide foreign loans will ask for proof of identity (passport), a copy of a valid employment pass of at least one year, and proof of address, income, and employment during the application stage.