What do you do when you’ve exhausted your paycheck and an emergency comes up? Or are in between jobs and have run out of cash for your own sustenance? You can take a small personal loan to tide you over the hard times.
Banks and other smaller lenders will be happy to bail you out as long as you can prove your ability to pay them back. However, it’s important you acquaint yourself with the ins and outs of such financial aid before you sign the dotted line.
What is a Small Personal Loan?
If you borrow an amount of $3,000 or less to address a pressing personal obligation, you have taken a small personal loan. Such needs are usually paying rent or settling the bill for a medical procedure not covered by insurance or purchasing furniture or large domestic appliances. The loan is issued to an individual, not a group or business entity.
Why Get a Small Personal Loan?
Traditionally, young adults turn to credit cards whenever they need quick access to credit. However, with longer repayment periods and higher interest rates, millennials are increasingly turning to personal loans to plug gaps in their finances. They would rather take a loan with repayments they can clear in the foreseeable future than endure the seemingly infinite credit card repayments.
Another reason you may want to go with a personal loan is that the repayments are predictable and will allow you to do your monthly budget accurately. Credit card repayments, on the other hand, depend on the balance remaining on the limit.
Who Gives Out Small Personal Loans?
You can always approach your bank for a personal loan. The approval should be pretty quick if you channel your salary through that bank and have a clean credit history or if you have something valuable you can offer as collateral. But what if your credit history is not squeaky clean? What if you have an erratic income, not a dependable monthly paycheck?
Smaller, non-bank lenders exist for this very purpose. They will give you the cash that you need even if your credit rating is not the best. If you don’t have a monthly paycheck, they can still consider other factors and lend you the money. However, because of the amount of risk involved, interest rates with these small lenders tend to be higher.
You don’t even have to leave your home to get assistance from these lenders. Not with all the mobile lending apps currently available. Some of these are owned by lenders, while others are built by third parties who act as brokers between borrowers and lenders. All you do is download an app, fill out a form, and wait for communication if your request was successful.
How to Find and Apply for a Small Personal Loan?
You can walk into your bank branch if your bank does not yet allow loans to be requested online or requires you to submit supporting documentation physically. Tedious as it may be, filling in your application by hand and hand-delivering your documents gives you a degree of assurance that you’re dealing with a real lender.
There are also mobile lenders you can trust based on the reputation they have built over the years. Independent reviews on lenders like AmOne by past users can be found on the Google Playstore or the App Store, as well as from blogs and online forums. Check out some AmOne reviews to gain insights into the security and speed of their service to help you make up your mind.
What to Consider
No matter how small the amount you’re borrowing may seem, you need to carefully consider a number of factors before submitting your application. The most important of these is the interest rate of the loan. As a rule of thumb, you should aim for a loan that does not exceed 12 percent. However, current interest rates range between 10 and 28 percent.
Your chances of getting a lower interest loan will be higher if you have a high credit score and a steady source of income. Conversely, if you have a low credit score and unsteady employment, the interest rate on your loan is likely to be higher.
Help for a Rainy Day
Knowing how personal loans work and how you can access them is important, though you may not see a need for them now. A wise man said being forewarned is being forearmed. Adding this information about loans to your bank of knowledge will stand you in good stead when a need unexpectedly arises.
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