If you don’t have a few thousand dollars in savings, there might come a time when an important expense pops up that you can’t afford.
Fortunately, there’s an easy option to borrow the money you need.
What is a small personal loan?
A small personal loan is an unsecured loan for less than $3,000.
You can use the money for a variety of purposes: paying a medical bill, fixing your car, repairing your plumbing, or even going on a vacation—though it isn’t recommended to borrow for nonessential purchases.
Some consumer-friendly small personal loans have fixed monthly payments with no balloon payment and require full repayment within 3 to 12 months.
The better your credit, the lower your interest rate could be.
What is the difference between small personal loans and other loans?
Unlike a credit card, personal loans are designed to be repaid within a short period so you can get out of debt fast.
And with a personal loan, you’ll know up front what your total borrowing cost will be.
If you borrow $1,000 at 10% interest (fixed) and repay it over 12 months, you’ll pay $55 in interest, plus any fees.
Your lender might charge an origination fee—a processing charge for taking out the loan—and you might get charged if you pay late.
If you repay the full loan early, you could pay less interest. Some lenders try to compensate with a prepayment penalty.
Shop around before deciding: you can find lenders that won’t penalize you for getting out of debt fast.
What are the advantages and disadvantages of small personal loans?
A big advantage of small personal loans is that they limit your risk.
Small personal loans are unsecured. There’s no collateral, like a car or house, that the lender can seize if you don’t pay.
And if you make all your payments on time, you should see a boost to your credit score.
The biggest disadvantages of small personal loans are the interest you pay and the amount of time it takes to shop around and apply for the loan.
And interest rates on unsecured loans are usually higher than those on secured loans because the lender is taking on more risk.
Small personal loans are available from some banks and credit unions. If you’re looking for a potentially more convenient option, online lenders also offer small personal loans.
If you need to cover an important expense and you want to avoid credit cards, a small personal loan is a choice to consider. LendGenius is not a lender but we provide one simple form that can connect you with a lender in minutes.
Disclaimer: This is not legal or financial advice. Please consult a legal or financial advisor for your specific situation.