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If you’re in the market for a small personal loan, the purpose of your loan can dictate which lenders you will work with and what your rates will be. There are several reasons people need to avail of a loan: a flooded basement, family medical issues, or any other unforeseen bills.
In an emergency, you need money, fast. A personal loan could be the answer, and a quick decision is essential. Finding a lender that aligns with your loan purpose and financial goals can significantly improve your overall satisfaction with your experience. Here are the best small loans, even if you have bad credit.
Best Small Personal Loans
|Loan amounts||Minimum credit score|
|PenFed Credit Union||Smaller loans under $1,000||5.99-17.99%||$500-$50,000||600|
|Lending Club||Ease of application||5.66-35.89%||$1,000-$40,000||600|
|Marcus||Goldman Sachs backs loans||6.99-24.99%||$3,500-$40,000||720|
|Discover||No fees of any kind if you make all payments on time||5.99-24.99%||$2,500-$35,000||660|
Best Small Loans for Bad Credit
|Lender||Best for…||APR range||Loan amounts||Minimum credit score|
|Avant||Multiple payment options||9.95-35.95%||$2,000-$35,000||550|
|Upgrade||No prepayment fees||7.96-35.97%||$1,000-$50,000||560|
|Universal Credit||Comparing offers via a lending platform||8.93-35.93%||$1,000-$50,000||Not disclosed|
|SeedFi||Built-in savings||0.00-29.99%||$300-$4,000||Not disclosed|
Reasons to Consider a Small Loan
These are usually unsecured personal loans for less than $2,500. They’re often used for emergency expenses, debt consolidation , or major purchases like home improvements. Loan terms are more flexible than other short-term options, like payday loans. You typically have at least a few months to repay.
These may not be ideal for credit card debt since many small loans have higher interest rates than credit cards. You will need to use a calculator to see whether it’s worth it and know the APRs charged by all your credit cards.
There are also a few things to consider before taking out a 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 cost you more. Lastly, consider all your options and take the time to review them since you don’t want to make a hasty decision out of desperation.
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.
READ MORE: Does Debt Consolidation Close Credit Cards?
Pros and Cons of Small Loans
- Fast funding
- Loan proceeds are available quickly, in a lump sum
- Fixed interest rates
- Fixed payments
- No collateral is required
- Simple application process
- Credit scores don’t matter
- Your credit history will matter
- 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
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)
How to Compare Small Installment Loans
Here are the most important features to compare when choosing a small loan.
- APR ranges (Annual percentage rate)
- Minimum loan amount
- Maximum loan amount
- Repayment term
- Monthly payment requirement
- Origination fees
- Credit score requirements
- Time to loan approval
- Fast funding
- 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.
To see 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.
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 report and look for errors
- Learn your credit score
- Compare lenders
- Get prequalified
- Complete the loan application
- Wait for approval
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 all you need is 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.
The Bottom Line
Ultimately, getting approved will come down to your creditworthiness. You may be able to find a lender if your credit score is below 630, but you’ll probably get hit with the highest interest rate.
It would be best if you had a credit score above 690 to secure a personal loan with a reasonable interest rate. An online lender won’t be beneficial if this is the case because you will face higher interest rates than a credit card. But if it comes down to payday loans or this option, this is the clear winner.
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 on their own 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.