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Small Loans For Bad Credit
What are small personal loans?
Personal loans are usually between $1,000 and $5,000. They can be paid back in two to three years. This makes the monthly payments extremely affordable. A personal loan can help you pay for your car repairs, to take your dog to the vet, or to fund minor medical procedures.
WHY GET A SMALL PERSONAL LOAN?
- Unsecured means you don’t have to provide collateral
- It is quick and easy to obtain
- Paid back over two to three years
- Good credit scores get low interest rates
- On-time payments can improve your credit score
A small personal loan: pros and cons
| PROS | CONS |
|---|---|
| Quick funding Many lenders will approve you and deposit funds in your account within one day. Fixed monthly payments Personal loans are lump sum loans that can be repaid over a fixed period of time in fixed monthly payments.Fixed APRs are common for personal loans. This means that you can lock in your interest rates for the entire term of the loan. No collateral.Personal loans that are unsecured don’t need collateral. You won’t lose an asset if the loan is defaulted on. May accept cosigners You may be able to enlist the assistance of a cosigner from some lenders, which could increase your chances of getting approved for a loan. | No minimum loan amount Personal loans typically have a maximum value of $1,000 so it may not be worthwhile to borrow one for an emergency. Potentially high APRs Borrowers with subprime credit may be eligible for loan offers that have an APR of up to 35%. Credit is the key to approval Bad credit borrowers might not be approved for personal loans.Origination fees.Lenders often charge origination fees of 1% to 8% of the total loan cost. Prepayment penalties.Lenders may charge you a penalty if the loan is not paid in full before the term ends. |
Avoid small loans if you can
Although a small loan can be an effective way to cover unexpected expenses or an emergency, here are some other things you need to know.
There are many options for loans for people with poor credit. These are the most common types of small loans that you might want to consider before you sign on the dotted sheet.
Payday loans
A payday lender might seem like a good option if you have a poor credit rating or no credit history. These lenders don’t usually conduct credit checks and you can get your money quickly.
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Payday loans, which are short-term loans of $500 or less, are due by your next payday. They are often used to help bridge financial gaps until you get paid again.
Thomas Nitzsche, a national credit expert and member of Money Management International, a National Foundation for Credit Counseling agency, says that payday loans are considered predatory products. Payday loans are often characterized by high interest rates, and consumers can find themselves in a vicious cycle of payday loan debt.
Title loans
Like payday loans, title loans can have very high fees. In exchange for a loan, you can pledge your car’s title.
If you don’t pay your title loan on time, it can lead to the loss of your vehicle. These loans are expensive and can be difficult to repay.
Pawnshop loans
You may also be familiar with pawn shop loans. These loans allow you to bring in an item that is of value and get a small loan, up to the amount of the item.
You must repay the loan prior to the end of the term. The term varies from one state to the next. You may be required to pay high fees and interest even if you do not repay the loan. The pawn shop will keep the item if you fail to repay the loan. Usually, none of the proceeds go to you.
You might also be interested in other small loans
Although these loans are a step above the ones we have previously mentioned, you will still need to consider how they fit into your overall financial picture in order to make financial progress after the loan is paid off.
Alternative loans for payday lenders
Credit unions offer small loans. You can look into the options. Some federal credit unions offer affordable loans called payday alternative loans.
Payday alternative loans must comply with several conditions, such as low interest rates of 28%, terms between one and 12 months, and loan amounts between $200 and $2,000.
Online lenders offer personal loans
Online lenders are another option for small personal loans for people with bad credit.
Personal loans are installment loans where you borrow a fixed amount of money and pay off the debt over a predetermined number of payments. While some personal loans require collateral such as a house or a car, others are not secured.
Some lenders are peer-to-peer lenders, meaning the personal loans are funded by individual investors instead of traditional financial institutions in an effort to get you a better deal.
The interest rate will be lower if you have a good credit score. However, a loan from an internet lender will usually have better terms than a payday loan. Payday loans can be very expensive and have high fees.
Alternatives to small loans for people with bad credit
There are other options if you don’t have the funds or can’t get a loan.
Budget reduction or payment assistance
You may need to have a little cash on hand. If this is the case, you can always free up some money from other sources if you are able.
Nitzsche states that if you have poor credit, but assets that can be liquidated then you might be able to sell valuable items. Your credit card company might offer a hardship plan to lower interest and payments. You might get a one-time extension from your landlord or split your monthly payments into two.
These cases don’t require you to take out any small loans.
Cash advance
Ask your employer to inquire about a short-term increase on your salary.
Nitzsche says that this would depend on the relationship you have with your employer and its likely size.
Another option for a small cash advance is getting one right from your credit card. This allows you to withdraw cash from your credit card and not buy something. This feature is available on many credit cards, but lenders may charge higher interest rates than payday loans.
Credit line for home equity
If you own your own home, another option is taking out a home equity line of credit, or HELOC for short. You can use the equity you have in your home to pay for short-term cash.
You’ll most likely receive checks or a credit line when you apply for a HELOC. This money can be used to purchase items during a “draw period.” However, you will need to make minimum payments until the draw period ends. The line of credit can then be converted into a “repayment term,” which allows you to repay the outstanding balance either over time or all at once depending on the terms.
Family and friends
Finally, if all else fails, you can consider asking your friends or a family member for a small loan. It’s best to have the agreement in writing, with terms that include due dates, interest charges, monthly payments, and payment amounts. The agreement should be treated as if it were a loan from a traditional lender.
This option has a downside: if you don’t pay back the loan, it could cause damage to your relationships with your closest friends and family.
