How to Get a Small Loan

What Can I Use a Small Loan For?

There's no formal definition for small loans, but they tend to be personal loans that you can use for almost anything. For example, you could get a small loan for a few hundred (to a few thousand) dollars to pay for:

• Unexpected emergencies
• Medical or vet bills
• Vehicle repairs
• Travel
• Home repairs or maintenance
• Household expenses

You'll have to review a loan offer's terms and conditions to see if there are any restrictions. For example, some lenders might not let you use the loan for higher education, gambling or business expenses.

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Where Can I Get a Small Loan?

The options for getting small loans have expanded in recent years, and you can now get a small personal loan from:

• Online lenders: Many online-only lenders specialize in unsecured personal loans that you can use for almost anything. Often, it's easy to see if you can prequalify for a loan without any impact on your credit. If you do, it may only take a few business days to complete the application and get the funds transferred to your bank.
• Banks and credit unions: Some of the largest financial institutions now offer relatively low-cost loans of $1,000 or less. Smaller community banks and credit unions may also have loan programs that allow you to borrow up to $2,500. And some credit unions offer payday alternative loans (PALs) for up to $2,000.
• Community development financial institutions: Community development financial institutions (CDFIs) are mission-driven financial institutions, including certain community banks, credit unions and nonprofit organizations. Some CDFIs receive funding specifically for small-dollar loans, and you can search the CDFI Fund's database to find organizations in your state that are part of the Small Dollar Loan Program.
• Peer-to-peer (P2P) lenders: P2P online lending platforms match borrowers with investors willing to lend funds. The experience is often similar to borrowing money directly from an online lender.
• Friends and family: Borrowing money from friends and family might strain relationships, but it can be a good option if someone close to you has the means and the willingness to lend you some cash. Make sure you hash out an agreement that outlines how and when you'll repay the loan in advance.
• Pawn and title loans: If you have something of value or own a vehicle, you may be able to get a pawn loan or an auto title loan. But proceed with caution, as these loans tend to charge a high interest rate and may cause you to lose your vehicle or property if you can't repay the loan.
• Payday loans: Payday loans may be an option for very small loans ($500 or less), but high fees make them a costly choice. Only consider these loans as a last resort if you don't have access to credit elsewhere.
• High-rate installment loans or lines of credit: Some online and branch-based lenders offer installment loans or lines of credit with high interest rates (60% to over 250%) or fees. While these are sometimes cheaper than payday loans, they should also be a last resort as the high interest rate can make them difficult to repay.

How Can You Qualify for a Small Loan?

Because you can get small-dollar loans from many places, there isn't a simple list of eligibility requirements. However, the qualifications usually depend on four factors:

• Credit: Your credit history and score will often impact your eligibility and loan offers from online lenders, P2P lenders, banks and credit unions. A higher credit score can help you qualify for loans with better terms, but there are also options if you have bad credit or no credit.
• Income: You may also need to verify your income when applying for a loan. Even loans that don't require a credit check could require you to have a regular income.
• Collateral: Many small-dollar loans are unsecured, but you'll need collateral (a valuable item or vehicle) if you want to get a pawn or title loan.
• Existing relationship: Of course, your relationship with a friend or family member will impact whether they lend you money. But the same is also true of some financial institutions. For example, large banks might only offer small loans to customers who have had a checking account for at least six or 12 months, and you'll need to be a member of a credit union to qualify for its payday alternative loans.

How to Apply for a Small Loan

The application process will depend on the lender, but there are a few steps that you can take to prepare and find a good loan.

1. Get Ready to Apply

Some quick preliminary work can help you narrow down the many options to your best choices.

• Review your finances. Start by figuring out how much you need to borrow, when you need the money and how much you can afford to repay from each paycheck.
• Check your credit. Your credit score can impact your options. Check your FICO^® Score^☉ for free from Experian to see where you're at.
• Consider the timing. When you're dealing with an emergency, a high-cost loan might be the best option. If you can wait, you may want to focus on improving your credit and applying later. Or, if you have a friend or relative with good credit, they might be willing to cosign a loan to help you qualify for a better offer.

In general, if you have good credit and a regular income, unsecured personal loans may offer the lowest rates and fees.

Your options may be limited if you have a low credit score. Payday, pawn, title and high-rate installment loans or lines of credit are commonly used options. However, small loans from banks, credit unions and other CDFIs might offer much better terms.

2. Compare Loan Fees, Rates and Terms

You'll also find there are many lenders offering each type of small loan. Try to get several loan offers and compare the following to determine what will be best.

• Fees: Small loans may have an origination or administrative fee, either a flat fee or a percentage of the amount you borrow. The fee may be taken out of your loan amount, which you'll want to consider when you make your loan request. A few lenders may also charge an application fee, but those aren't as common.
• Loan limits: Some lenders may be unwilling to issue a loan as small as the one you're seeking, which can cause you to overborrow. While you can often repay part or all of the loan early without paying a penalty, borrowing a larger loan than you need can result in paying an unnecessarily large origination fee.
• Annual percentage rates: The loan's annual percentage rate (APR) can help you understand how much you'll pay for the loan based on its fees and interest rates. Some loans, such as payday loans, don't have an APR because they charge fees instead of interest. You can search for an APR calculator to convert the fee to an equivalent APR.
• Secured and unsecured options: Small loans may be secured or unsecured. Secured loans can be easier to qualify for, but you'll need to pledge collateral that the lender can take if you don't repay the loan. Unsecured loans may be less risky, but it could be harder to get approved and you may need to pay more fees and interest.
• Repayment terms: You may have several weeks to several years to repay your loan. Longer repayment terms can be more manageable as you'll have lower payments, but you might wind up paying more interest overall.

3. Apply for the Loan

Many applications will ask you to share some basic information about yourself, including your name, address, date of birth, Social Security number, employment status and overall income. You may also need to verify your information and income by sharing copies of a government-issued ID and pay stubs or tax returns.

Once you get approved for a loan, you can still decide whether to accept or decline a loan offer. If you accept the offer, you may be given a check, cash or have the money transferred to your account in a matter of days.

Alternatives to Small Personal Loans

You can look into several alternatives instead of getting a small loan. And even if you have good credit, a small loan won't always be the best option.

• Negotiating with creditors: You could ask your creditors if they offer hardship programs, which could temporarily lower or pause your payments. These can help you free up money to cover an emergency expense.
• Help from nonprofits: Look for organizations and programs that could help you find resources. You may be able to get help paying for necessities, such as utilities, rent, medical bills, medications and food.
• Credit counseling: Nonprofit credit counseling organizations can connect you with a trained counselor who can help review your finances and explain your options. If you're struggling with unsecured debt, such as credit card bills, the counselor can try negotiating with your creditors to get you on a more affordable payment plan.
• Get early access to your pay: You might be able to get an advance on your next paycheck by asking your employer or using an early payday app.
• A credit card with a 0% intro APR offer: Some credit cards give new cardholders a promotional 0% APR on purchases. You could use the offer to finance and pay off a purchase without accruing interest.
• Use a cash advance: You can withdraw cash with your credit card using a cash advance. However, cash advances often have extra fees and start to accrue interest immediately.

In the end, any method that can increase your income or decrease your expenses might help free up the money you would otherwise need to borrow. Otherwise, credit cards might not be a great long-term option because of the high fees and interest rates, but they may be cheaper than some small loans.

Compare Options Without Hurting Your Credit

Finding the cash to cover a small expense can be frustrating, but you do have options. If you plan to apply for a small loan, check your credit report and credit score to get an idea of where you stand. If your credit score means you may be faced with a loan that comes with high fees and interest, it may be best to consider another route to pay for the expense, take some time to shore up your credit and apply for a loan in the future.