Many people in this era need access to small-dollar personal loans rather than large-figure sums. They might need to pay for unexpected car repairs, or sky-rocketing medical bills, and probably do not have the cash set aside in advance of their emergency need. Small-dollar loans are designed to provide lower-income individuals and families with necessary funds on affordable repayment terms. They can be an ideal option for building or rebuilding credit, and can even help establish a foundation for other asset-building loans, like auto loans or mortgages. Because small-dollar loans (also known as small-figure loans) deal in small increments of money, they also tend to be short-term with quick repayment schedules.
What is required for a small-dollar loan?
Unlike a home or auto loan, small-dollar loans generally do not require collateral. Your interest rate will often be based on your creditworthiness. Your credit score and income history may be the primary factors a lender will choose to look at, but by no means are these items the be-all and end-all of the loan application process. A lender may choose to offer a small-dollar loan to a person with less-than-perfect credit; they interest rate attached to loan may be higher than it would for an applicant with a good or great credit rating, but it is often still affordable.
Where can you get a small-figure loan?
There are several different types of lenders that offer small-dollar loans.
Major banks
A few big-name banks offer small loans of around $3,000, and often have a processing fee. On average, this fee is usually around $75. Small-dollar loans from these large banks are generally based on the borrower’s income and credit score, and interest rates will vary, based on the applicant’s qualifications. One advantage of small-dollar or small-figure loans is that the interest rates are often fixed for the entire term of the loan.
Credit unions
Credit unions are a great option for small loans, though you generally are required to be a member of the union or become a member before you can take advantage of these offerings. Some credit unions offer loans in the $500 range, and members can even use their deposits as collateral to speed up approval on their loan. If you need a small-dollar or short-term loan badly, a credit union should be at the top of your list to check into, because the repayment terms are often more affordable than other options.
Online lenders
Online lending companies offer many loan options, some starting as low as $1,000. Borrowers can use the website’s tools to quickly determine what rates they may qualify for. Credit score, credit history, and proof of income will all be used to determine interest rates, though some also look at job status and education level to make their decision.
Payday loan store
There may be nothing easier than going to a payday loan business, because they do not check credit scores to make their decision. However, payday lenders should be a last resort for many people looking for a small-dollar or short-term loan, as they often charge exorbitant amounts of interest; interest rates have been reported as reaching 1,000% of the principal, or higher. They offer short-term cash advances in exchange for access to the borrower’s deposit account via post-dated check or electronic transfer authorization, and often require a lump-sum repayment, rather than installments. Often, a borrower who takes out a payday loan has trouble finding the funds to pay back the loan in-full and on-time, and may get trapped in a cycle of debt for weeks, months, or even years.
How can you decide if a loan is affordable?
The National Consumer Law Center says that loans of less than $2,500 are only considered to be affordable if:
- The attached interest rate is less than 36%
- The terms of repayment offer three months amortization
- The loan includes no balloon payments
If you are in need of some hard cash fast, contact Wise Loan for affordable small-dollar loans today!
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.
