Small personal loans range from $1,000 to $5,000 and are typically repaid within two or three years, making the monthly payment extremely low. Whether you need to pay for an auto repair, take your dog to the vet or fund a minor medical procedure, a personal loan could help.
While applying for a personal loan may not be the most exciting process, it doesn’t have to be stressful. Here are the steps you’ll follow when seeking a small personal loan:
Many types of financial institutions offer small loans to consumers; however, the availability, terms and eligibility requirements will depend on the lender you choose.
Before launching into your search for a small loan, consider checking with your current bank first. Some banks, like Wells Fargo Bank, require you to be a current customer in order to access personal loan products.
The personal loan application process may take a bit longer to complete compared to online lenders, but you may access perks like no-fee loans. Banks may also require that you visit a local branch in person in order to close on your loan.
To get a small personal loan from a credit union, you’ll typically need to become a member of the credit union first. This may require a small fee or deposit. Check membership requirements before applying for a loan, as some credit unions only cater to certain groups, such as people with military ties.
Credit unions also typically tend to offer smaller loan amounts than banks and online lenders. Navy Federal Credit Union, for instance, offers loans as small as $250. Another benefit to credit unions is that the APR is capped at 18%, which is particularly good news if you’re having trouble finding lower rates elsewhere.
Online lenders offer flexibility to consumers who don’t want to become a credit union member or bank customer. Because everything is done online and you don’t have to worry about creating a membership or banking account, online lenders may take less time to approve and fund your small personal loan.
When it comes to online lenders, amounts typically start at $1,000 to $2,000. This may be higher than what other types of lenders — such as credit unions — offer.
It’s always a smart idea to receive several loan offers when shopping for a personal loan. Once you have multiple offers in hand, consider the following factors to decide which offer is best for you:
Unfortunately, if you have a low credit score, it can be challenging to find a lender that’s willing to work with you. In the eyes of lenders, the lower your credit score, the riskier you are as a borrower. Lenders use credit scores to evaluate how likely you are to repay your loan.
If your credit score needs work but you need a personal loan, here are a few strategies that may improve your chances:
While there are many trustworthy small personal loan lenders out there, it’s important to be cautious and research lenders before signing the contract. Here are a few red flags to look out for and avoid:
No credit checks: No credit checks may sound like a dream come true if you have bad credit and are in need of some extra cash. However, any credible lenders will require a credit check to ensure that you can afford to repay a loan. Payday loan lenders, for example, don’t require credit checks and should be avoided.
Require access to checking or savings accounts: Some predatory lenders may require you to provide your checking or savings account information. Once you do, these lenders are able to withdraw money from your account to repay your loan, even if it overdrafts your account and costs you bank fees.
Lack of transparency: If a lender isn’t upfront about its fees and interest rates, you may want to rethink getting a loan with them. A trustworthy lender will make that information readily available on its website or during the application process.
Sky-high fees and interest rates: Some loans, such as payday loans, come with interest rates as high as 400%, which can make it challenging to repay that debt. Many borrowers end up having to take out more loans to pay off their original loan, trapping them in a cycle of debt.
Repayment lengths: The length of time you have to repay a loan can also be an indicator of a predatory lender. Predatory lenders sometimes offer only two to four weeks for a borrower to repay a loan. This short repayment period can make it difficult to keep up with payments.
If you’re in need of extra funds, a small personal loan isn’t the only option on the table. Here are a few other alternatives to explore:
To avoid paying interest, you can apply for a 0% introductory APR credit card. During the introductory period, your balance does not accrue interest, and every payment you make goes directly to the principal.
Once that promotional period ends, however, you’ll have to pay interest on the remaining balance. These promotions can last anywhere from 12 to 21 months. If you’re certain you can pay off your balance before the end of the introductory period, these cards can be a great option.
Since many retailers offer buy now, pay later (BNPL) services, you may be able to get a mini loan through a service such as Affirm or Klarna.
The most common form of buy now, pay later financing is a Pay in 4 plan. Your balance is split into four payments repaid over six weeks, with a payment due every two weeks. In many cases, these BNPL plans do not charge interest. Other common BNPL financing includes monthly installments or Pay in 30 days, though these plans sometimes come with interest charges.
If you need emergency cash, you can use a cash advance credit card to access funds quickly.
You can withdraw funds by going to your bank’s branch, visiting an ATM or getting a convenience check in the mail. Keep in mind, however, that cash advances typically have fees attached, as well as interest rates that can be much higher than your typical credit card APR.
If you have a loved one with the financial flexibility to offer you a loan, receiving a family loan and signing a loan agreement may be a good way to avoid fees and high interest rates.
However, when borrowing from a friend or family member, be aware that the loan could impact your relationship. According to a 2021 LendingTree study, nearly half of the people who are owed money from a loved one reported that they regretted lending it in the first place. About 1 in 6 claimed that money had ruined a relationship.
We looked at 20 lenders that offer personal loans below $2,000 to determine the 10 best lenders for consumers who are looking for small loans. By offering a detailed and objective account of each lender’s rates and terms, LendingTree’s goal is to provide you with all the information you need to make a financially sound decision specific to your situation.
Here’s the criteria we assessed to choose the best small personal loan lenders:
How much you’ll pay overall on a $5,000 will be determined by your interest rate and the length of your loan. Typically, the longer your loan, the more you’ll pay in interest.
For instance, if you take out a $5,000 loan with a 10% interest rate over a period of five years, you’ll pay $106.24 a month and $6,374.11 overall. On the other hand, if you borrow the same amount but pay 15% interest over three years, your payments will be $173.33 a month, but you’ll only pay $6,239.76 overall.
Use a loan calculator to estimate how much your $5,000 loan could cost you.
Small loans typically range between $1,000 and $5,000, though some loans can be as low as $100. With especially small loans, it’s important to read the fine print, as some lenders (such as payday lenders) may charge larger fees and interest rates.
Small loans can lower your credit score, but the effect is usually temporary. When lenders run hard-credit pulls to approve you for financing, the pull puts a small dent in your score, but the effect usually disappears within two years. Small personal loans can also negatively impact your credit score if you fall behind on payments or default on debt.
Personal loans can help build your credit as you make on-time payments and eventually pay off the balance. Other ways you can improve your credit score include the following: