You’re in need of a quick, small amount of cash for a broken-down car, medical emergency or a pile of bills you just can’t get ahead of. Perhaps your credit score isn’t good enough to get a large loan from a bank or you just don’t want to borrow more than you need. What are your options?
A small dollar loan may fit your situation. This type of loan is typically an unsecured loan of under $5,000 and can be borrowed from a variety of sources, including credit unions, banks, payday loan stores, and online lenders. Let’s take a look at the various options and pros and cons of each.
A payday loan, also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan, is a small, short-term unsecured loan that is based on your payroll and employment records. These loans are the easiest to qualify for because they don’t require any type of credit check. However, the interest rates are extremely high, and the cycle of borrowing and payback can trap the borrower in a cycle of debt from which it can be difficult to extricate yourself. Payday loans are considered a last resort and are to be avoided if possible. In fact, according to a review of the payday lending market by The Pew Charitable Trusts many payday lenders charge 300 percent interest, legally. And if you’re allowed to pay that loan back installments rather than a lump sum, the interest rate can go as high as 600 percent.
Small Loans from Big banks
Most large banks don’t offer small dollar loans. However, a few do, including Wells Fargo loans , which offers loans as low as $3,000. They require a $75 initiation fee and are granted based on credit qualification and income verification. Interest rates vary based on these criteria, but the rate is fixed for the life of the loan. If you decide to apply for an unsecured loan like this from a bank, you will likely need to have a good or excellent credit score.
Small Loans from Credit unions
Credit unions are more likely to offer small personal loans than the big banks. Many require that you are a member but not all, so shop around. Many offer loans as low as $500. If you’re a member of a credit union, you can sometimes use your own money saved in their bank as collateral, and this type of loan won’t typically require a credit check or income verification. But frankly, if you have savings in the bank you’re less likely to be shopping around for a loan, so let’s explore some other options.
Online personal loans are very convenient. You can apply for them from the comfort of your desk chair and often will find out if you’re eligible in seconds. Another plus: Many companies will check your eligibility without impacting your credit score.
Many online loans start as low as $1,000 and you can quickly check to see what type of rates you might qualify for. Your credit score, history and income are important determining factors, but some companies will consider other things such as job and education.
When you’re considering an online personal loan, also take a look at the origination fees, late fees and repayment flexibility to see what works best for you.
Something to consider: The National Consumer Law Center advises that loans under $2,500 are considered affordable only if the interest rate tops out at 36 percent, the loan offers at least three months for repayment, and there are no balloon payments.
For a complete list and reviews of these online loan companies and more, visit SuperMoney personal loan reviews here.
Your credit score, credit history and income history are typically the most important considerations when applying for a small dollar loan.
Small dollar loans from a bank or credit union can sometimes be applied for online, but you may have more luck going to a physical branch and talking to a banker. In this case, you may need to bring in some pay stubs for proof of income and make sure you know your social security number so the bank can check your credit score.
To apply for a payday loan, you need your social security number, a bank account and proof of income.
You are also asked if you rent or own your home and your annual income. Sometimes your education and current work status are requested.
The company will do a credit check to determine your eligibility. Your credit score and history will impact the loan for which you qualify, or if you qualify at all. A better credit score always ensures better loan terms, but a low score won’t rule you out.
As with any loan, make sure you are aware of any initiation fees, the interest rate,repayment terms and flexibility.
To start the process of finding a small dollar loan, visit Supermoney.com, where you can compare your various loan options. Read reviews and see what type of loan you may qualify for based on your credit score.
Heather Skyler writes about business, finance, family life and more. Her work has appeared in numerous publications, including the New York Times, Newsweek, Catapult, The Rumpus, BizFluent, Career Trend and more. She lives in Athens, Georgia with her husband, son, and daughter.