Sometimes you need a modest sum of money to cover an unexpected expense or to take advantage of a good deal. If you don’t have the cash, a small personal loan — ranging anywhere from a couple of hundred dollars to thousands — could complete the transaction.
Personal loans can be more affordable than other forms of financing, such as a high-interest credit card or a payday or title loan. And if you have good credit, you could qualify for an attractive rate and low payment. See what kind of rates you qualify for today via Credible.
To determine if a small loan is right for you, you have to understand how they work and how to apply. Here's everything you need to know, starting with the different types available.
7 types of small personal loans to consider
While personal loans can be available for up to $100,000, a small personal loan is typically between $600 and $3,000. This type of loan is money you borrow from a financial institution, such as a bank, credit union, or online lender. Once approved, you repay the debt by making monthly payments. Terms and interest rates are based on your credit history and score.
There are at least seven types of personal loans you should know about:
- Unsecured personal loans
- Secured personal loans
- Debt consolidation loans
- A personal line of credit
- Title loan
- Payday loan
1. Unsecured personal loans
These installment loans don’t require collateral and usually require that borrowers have good credit. Without collateral, it's important you have a steady income and a good credit score in order to qualify for lower rates and to get approved by a private lender.
If you know you have a good credit score, you can get a jumpstart on researching now. Use Credible's free rates table to view multiple lenders and offers at once. Just enter your desired loan amount and estimated credit score to view loans from $1,000 to $100,000.
2. Secured personal loans
This type of installment loan is backed by collateral, such as a car or savings account, and is usually offered to borrowers with fair credit.
3. Debt consolidation loans
A debt consolidation loan is taken out to consolidate the monthly payments on other debts.
Check out Credible's debt consolidation loans. Their 3-step process is quick and painless. All you have to do is check rates from several personal loan lenders at once to determine the best company and loan for you based on your desired loan amount, submit an application and close on the loan. Don't wait for rates to rise — get started on the process today.
4. Personal line of credit
This type of personal loan is similar to a credit card, with a revolving amount that becomes available for borrowing again once it’s repaid.
A pawnshop provides borrowers with a small loan, using a valuable item, such as jewelry, to secure the loan. If the borrower doesn’t repay the loan within a set amount of time, the pawnshop keeps and sells the collateral item.
6. Title loan
This type of loan uses the ownership papers of your car as collateral. If you don’t repay the loan, you put your car at risk.
7. Payday loan
This type of loan provides funds that are borrowed against your future paycheck.
The interest charged on these types of loans can vary greatly. Pawnshop, title and payday loans often have the highest interest rates. Visit an online marketplace like Credible to explore personal loan options to find the best rates for your situation.
Why should I get one?
Personal loans can be used for virtually anything, such as:
- An emergency expense, like a medical bill or car repair
- To provide extra cash during a personal crisis
- To consolidate other debts that have higher interest rates
- To buy a used car
Before you take on additional debt, consider all of your options, and be sure to consider the rates and terms. You want to choose a loan with a payment you can afford. Visit Credible to use their personal loan calculator to determine how the payment will impact your monthly budget.
A small personal loan can be a lifesaver for a variety of situations, but only if you understand how to use it. When you take the time to make the best choices, you help improve your financial situation for the long term.
How do I apply?
Each lender has its own application process and qualification requirements for personal loan borrowers. Lenders typically look for a steady income, a low debt-to-income ratio, and a good credit history. If you want to find the best interest rates, it helps to shop around.
If you need the money for an emergency, look for a loan that can be approved and funded quickly. And make sure the loan has clear terms, with no hidden fees and a set payment schedule.
Since lenders have different requirements, a good start would be to visit a site like Credible, where you can explore your personal loan options and compare rates and qualifications.
Most banks, credit unions, and online lenders have an online form to start the application process, which means you can apply at any time.