Are you looking for a small loan to bridge the gap between paychecks? Or perhaps you have an upcoming expense like a birthday gift, car repair, or emergency trip that’s not quite in your budget. No matter the case, there’s a variety of places you can turn. Read on to learn how to borrow a small amount through four different loan types.
4 types of small loans
Here are four types of small loans that can be helpful when you’re in a bind.
Personal loans
A personal loan provides you with a lump sum upfront that you repay over a set term. Along with the loan amount, lenders charge interest and sometimes upfront fees such as origination fees, which together make up the annual percentage rate (APR).
The average interest rate on a two-year personal loan was 12.33% in August 2024, according to the Federal Reserve, while origination fees can range from 0% up to 12% of the loan amount, and are usually deducted from the loan funds before you receive them. Personal loan rates range from around 6% APR up to 36% APR, and depend largely on your credit.
Many banks, credit unions, and alternative lenders offer personal loans and, upon approval, can deposit funds in your bank account as soon as the same business day, in some cases. To qualify, you’ll often need verifiable income and at least fair credit — although some lenders are more flexible than others and may offer personal loans for bad credit (typically defined as a FICO score below 580).
Payday loans
Payday loans are small, short-term loans with high APRs that can reach well over 400%, depending on where you live. As the name suggests, they’re designed to provide you with a loan until your next pay date, and they don't require a credit check.
Due to their high costs and short repayment periods, they should be treated as a last resort. Many states have restricted them, while a select few have even made them illegal.
Tip
Consider the APR when comparing personal loan rates to get an idea of the total borrowing costs. The APR accounts for both the interest rate and upfront fees, like origination fees.
Cash advance app loans
Cash advance apps offer a different spin on payday loans that can be more affordable. Finance services companies like EarnIn and Dave allow you to request small loans through their mobile apps and repay them on your next payday.
Maximum loan amounts may range from $250 to $1,000, and fees vary by provider. Many offer free ACH transfers, but charge a fee for instant delivery. Expedited payment fees tend to be $10 or less, but increase with your loan amount.
Additionally, some companies charge other fees — for example, Dave charges $1 per month to be a member — and many let you give tips. Know that expedited payment fees in particular, but also tips, can drastically increase your cost to borrow with a cash app.
For example, if you expedite payment for $10 on a $400 loan amount due in two weeks, and add a $10 tip, the APR would be about 130%. Not as high as some payday loans, but much higher than the majority of personal loans. But without expediting payment or adding a tip, you could potentially get a 0% APR short-term loan.
A big perk with cash advance apps is they often don’t require a credit check, like payday loans, which can be helpful for the credit-challenged.
Credit card cash advances
Credit card cash advances let you pull cash out of an ATM from a credit card. Most credit cards come with a cash advance limit that is a percentage of the card’s total credit limit. For example, if you have a $1,000 credit limit, you may have a cash advance limit of $200.
As for the costs, credit card providers typically charge an elevated APR on cash advances and interest starts accruing immediately.
For example, the Citi Double Cash Card charges an APR of 19.24% to 29.24% on purchases, but 29.99% on cash advances. Additionally, cash advances often have a fee — for example, 5% of the advance amount or $10, whichever is greater.
You can pay the cash advance back whenever, as long as you make your minimum payment each month. The longer the balance remains outstanding, however, the higher your borrowing cost.
Assessing your eligibility
Before shopping for a small loan, figure out where you stand in terms of eligibility. When you apply for personal loans, payday loans, and credit cards, lenders often consider:
- Credit score: Your credit score gives lenders an indication of how likely you are to repay loans on time. Some lenders have minimum score requirements you must meet.
- Credit report: Your credit report reveals your payment history, credit utilization, requests for new credit, public records, and more. Lenders often consider this information to assess the risk you present.
- Income: Your monthly and/or annual income helps lenders understand the monthly repayments you can afford, which influences the amount you can borrow.
- Employment history: To assess the stability of your income source, lenders often ask about your place of employment and employment history.
- Debt-to-income ratio (DTI): Your DTI — your monthly debt obligations divided by your pretax monthly income, expressed as a percentage — helps lenders understand the amount of your income that’s consumed by your debt payments. The higher the ratio, the more risk lenders assume you present. A ratio of 35% or under is often preferred, but some lenders will accept higher.
Borrowers with high credit scores, clean credit reports, higher income amounts, stable employment situations, and low DTIs often qualify for the best loans, rates, and terms.
That said, many lenders approve borrowers who don’t have high marks across the board. Once you know where you stand, you can check the eligibility requirements of potential lenders to see if they’re a good fit.
Finding the right lender
To find the best deal on a loan, it’s important to shop around. Many lenders let you quickly prequalify for loans online without hurting your credit score. Just know that prequalification is not an offer of credit.
Your rate could be higher once you apply, and the lender will conduct a hard credit inquiry that could lower your credit score temporarily by a few points.
When comparing quotes, be sure to note the following factors:
- Loan amounts
- APRs
- Fees
- Repayment terms
- Monthly payment amounts
- Total loan costs
- Customer service channels
- Reviews from past borrowers
Compare at least three offers side-by-side, considering the above factors, to find a lender that offers the best overall value.
How to apply for a small loan
Once you find a winning loan quote, follow the lender’s instructions to move forward. The final application process often involves verifying all of the information you provided to get a quote.
For example, lenders may request proof of income, a government-issued identification card, proof of employment, proof of address, and permission to run a hard credit check. You can improve your chances of getting approved for a loan by ensuring all of the information you provide during the quote process is accurate and verifiable.
How to get a small loan with bad credit
If you have bad credit and are having trouble getting approved, try these steps.
- Apply with a cosigner: Some lenders allow you to apply for a personal loan with a cosigner who agrees to pay the loan if you can’t. If you know someone with good credit who is willing to sign for you, they may be able to help you get approved. Just remember they will be on the hook for payments if you miss them.
- Look to loans with no credit checks: A few options on this list don’t require credit checks. Some, but not all, may be good options. Consider cash advance apps with low fees, or taking a cash advance from a credit card you already have in your wallet. Avoid payday loans.
- Work on your credit: While usually not an overnight fix, improving your credit will open more borrowing doors in the future. Review your credit reports and strategize how you can improve your credit score as soon as possible. For example, you may be able to consolidate debt with a debt consolidation loan to lower your payments, interest rate, and even improve your credit (almost overnight).
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