Personal finance advisors often recommend that you avoid borrowing amounts that exceed what you need. Small personal loans can provide funding for incidentals like car repairs, medical bills, replacement appliances and other unexpected expenses. However, many lenders set their minimum loan amounts at $2,000 or higher, which means you may have to do some research to find a loan that doesn’t require you to take on more debt than you need.
Here’s what you should know about finding the right loan for your circumstances and what to consider before applying, as well as alternative ways to cover a minor expense.
[Read: Best Personal Loans.]
Where to Get a Small Loan
Small personal loans may be available through banks, credit unions and online lenders.
To find the right loan for your needs, first determine your desired loan amount. For example, if you just need $500 to cover an emergency car repair, then search for lenders that offer that loan amount. Taking out a larger loan than you need means you’ll pay interest on money that you didn’t necessarily have to borrow.
Importantly, you should only take out a personal loan from a reputable lender. Be on the lookout for predatory payday lenders or check advance lenders that offer small-dollar loans with no credit check. These loans typically require you to repay the balance in just two weeks and often carry triple-digit APRs.
You can find legitimate personal loans by reading lender reviews. Another good rule of thumb: Legitimate personal loan lenders won’t charge APRs that are 36% or higher.
Small Personal Loans Less Than $1,000
| Lender | Loan Amount |
| First Tech Federal Credit Union | $500 to $50,000 |
| Navy Federal Credit Union | $250 to $50,000 |
| Oportun | $300 to $8,000 |
| PenFed Credit Union | $600 to $50,000 |
Personal Loans of $1,000 or More
| Lender | Loan Amount |
| Alliant Credit Union | $1,000 to $100,000 |
| Earnest | $1,000 to $250,000 |
| LendingClub | $1,000 to $40,000 |
| LendingUSA | $1,000 to $47,500 |
| PNC Bank | $1,000 to $35,000 |
| U.S. Bank | $1,000 to $50,000 |
| Upgrade | $1,000 to $50,000 |
| Upstart | $1,000 to $50,000 |
Eligibility Requirements for Small Personal Loans
Personal loan providers determine your eligibility based on your credit history and score, income stability and debt-to-income ratio to decide whether to issue credit and at what interest rate.
Applicants with good credit, defined as a FICO score of 670 or higher, will enjoy the best approval odds for a personal loan, although a score in the mid-700s or higher will help boost your chances. On the other hand, people with lower credit scores will have a harder time qualifying for a loan. Additionally, a higher credit score means you’ll get a lower interest rate, and vice versa.
When you formally apply for a personal loan, the lender will conduct a hard credit inquiry, which will temporarily lower your credit score by a few points. If you’re approved for the loan, your credit score should recover after you’ve made a series of on-time payments. But if your loan application is denied, it may be more difficult to qualify for credit in the future. If this is a concern, make sure the lenders you contact offer risk-free personal loan prequalification with a soft credit check.
Can You Get a Small Personal Loan With Bad Credit?
It may be possible to get a personal loan with bad credit, but your options will be limited.
Credit unions are worth considering if you need a loan but lack a strong credit history. Because they are nonprofit and member-owned, credit unions offer some of the most competitive interest rates on the market. In fact, federally-chartered credit unions have an interest rate cap of 18% for consumer loans. Many also offer payday alternative loans, which are small-dollar loans capped at 28% APR.
Some for-profit lenders specialize in small personal loans for bad credit, but the interest rate is likely to be much higher — up to 36%. It may be possible for borrowers with bad credit to qualify for a secured personal loan that’s backed by collateral, such as a car title or savings account. But tread carefully: If you default on a secured personal loan, you risk losing the asset you used as collateral. And avoid so-called “title loans” with interest rates that rival those of payday lenders.
Alternatively, some lenders may let you apply for a personal loan with a co-signer, like a trusted friend or relative. Applying for a loan with a creditworthy co-signer can help you qualify for better repayment terms, like a lower interest rate. Keep in mind that the co-signer would be equally responsible for repaying the loan, so be sure to have a plan in place to make your monthly payments on time.
[Read: Best Bad Credit Loans.]
What to Consider When Seeking a Small Personal Loan
— Interest rate. A personal loan’s interest rate is the financing charge you pay the lender for issuing you money, so you should aim to get the lowest personal loan rate possible for your financial situation. You should also consider a personal loan’s annual percentage rate, or APR, which represents the total cost of borrowing including interest and fees. Most personal loan lenders let you prequalify to check your estimated APR with a soft credit inquiry, which won’t impact your credit score.
— Loan fees. Some lenders charge personal loan fees, such as origination fees, late payment fees and prepayment penalties. A loan origination fee can be up to 10% of the amount borrowed and may be subtracted from the balance of the loan, which impacts the amount of money you ultimately receive. Prepayment penalties are fees charged for paying off a loan early.
— Repayment term. Small personal loans typically come with repayment periods of one to five years. (Larger personal loan terms can be as long as 15 years.) Personal finance experts recommend that you avoid excess interest charges and take a loan with the shortest term you can comfortably repay, especially if you’re only borrowing a few hundred dollars. You can use a personal loan calculator to see how the repayment term impacts your monthly payments and total interest.
— Funding timeline. Many lenders issue your personal loan funds directly into your bank account in just a few business days. Select online lenders offer next-day or same-day funding, which can be a good choice if you need money for an emergency expense like a car repair or medical bill.
— Usage restrictions. Personal loan lenders may place restrictions on how you can use the funds. For example, you’re not usually able to use a personal loan to pay for college tuition or related expenses that are covered by student loans. And most mortgage lenders don’t allow you to use a personal loan for a down payment on a home.
[Read: Best Low-Interest Personal Loans]
Alternatives to Small Personal Loans
Personal loans can be used to cover a small expense, but there are probably better borrowing options available, depending on why you need the money. For example, it may be possible to enroll in an interest-free payment plan for medical bills, and you may be able to finance a home appliance with a store credit card. Here are a few alternatives to borrowing with a small loan.
Credit Cards
While credit cards tend to carry higher interest rates than personal loans, they may be a sound alternative if you need to borrow a small amount of money that you can quickly repay. Credit cards are an even better option if you can charge the small expense and pay the statement balance in full before the next month’s payment due date. That way you can avoid paying interest.
Additionally, you can search for credit cards with an introductory 0% APR period when you open a new account. These zero-interest promotions typically last up to 18 months, giving you plenty of time to pay off a small balance before incurring any interest. It’s important to note that you’ll usually need very good or excellent credit to qualify for a 0% APR credit card offer.
Buy Now, Pay Later
Buy now, pay later companies like Affirm and PayPal let you borrow a small amount of money that you repay in installments over a short period of time, typically a few months. If you’re financing a new appliance, such as a replacement refrigerator, you may be able to qualify for a buy now, pay later financing agreement. And many health care providers have begun including BNPL medical financing options.
Before you enter a BNPL agreement, read the loan terms carefully. Some BNPL providers charge interest as high as 36%, and others may come with steep late payment fees. But in many cases, BNPL can help you break a large expense into smaller payments at little or no cost to you, without a hard credit check.
Payday Advance Apps
Emerging technology has brought a rise in payday advance apps that let you borrow a small amount of money from an upcoming paycheck when you need it. These loan apps can help you access funds on the same day you apply, making them a convenient option if you need money in a pinch.
While some apps are free to use, others charge interest or membership fees. Keep in mind that the amount you borrow will be automatically deducted from your next paycheck, so you’ll need to budget accordingly.
More from U.S. News
What Is a Good APR on a Personal Loan?
Is Getting a Personal Loan a Good Idea or a Bad Money Move?
Should You Refinance a Personal Loan?
How to Get a Small Personal Loan originally appeared on usnews.com
Update 09/30/24: This story was previously published at an earlier date and has been updated with new information.
