Sometimes a small loan is all you need to cover a big purchase or get through the month. In these cases, small personal loans under $3,000 can help fill the gap.
Although some banks will not fund small personal loans, some lenders offer personal loans starting at $1,000. Here’s what you need to know about taking out small unsecured personal loans and where you can find them.
Where to find small personal loans
Most major banks and other major lenders set a minimum loan amount for personal loans. Because of this practice, borrowers looking for small personal loans to cover short-term costs may have to shop around.
If you know where to look, however, it is possible to obtain small unsecured personal loans from a reputable lender. Here are six tips to keep in mind when looking for a good lender that fits your situation.
Start your search with LendingTree
LendingTree, the parent company of Student Loan Hero, should be your first stop when looking for a small personal loan. With dozens of lenders participating in the LendingTree platform, including many of those listed below that offer smaller loan amounts, you can easily compare loan offers by filling out a single online form.
Additionally, LendingTree will only put a slight draw on your credit, which means there is no risk of your credit rating being affected by using their service. At Student Loan Hero, we recommend starting with LendingTree to ensure you get the lowest rate and most attractive terms for your small personal loan.
Click here to visit LendingTree.
Find small loans online
Online personal loan providers may be more likely to offer flexible borrowing solutions. There are several major personal lenders that offer small dollar loans to borrowers:
Be sure to do thorough research and compare costs, however, to choose the best online lender for your small loan.
Also be aware that the balances offered to you by an online lender may be influenced by your condition. Each state has different lending rules and regulations, which can affect how much you can borrow through an online personal loan.
Get small dollar loans from credit unions
As non-profit organizations, credit unions often offer unique products that provide customers with broader access to affordable financing. In fact, the National Credit Union Association (NCUA) has regulations in place for Alternative Payday Loans (PAL or PAL II) – small amount loans that provide a less expensive credit option than payday loans.
With alternative payday loans, federal credit unions can offer small personal loans between $200 and $1,000, with repayment terms of one to six months. Newer PAL II loans can be for up to $2,000 and have a maximum repayment term of 12 months. Under NCUA regulations, interest rates on PAL and PAL II are capped at an effective APR of 28%.
To obtain a PAL or PAL II, you must have been a member of the caisse for a month or more. Check with your local credit union and see if they offer a small loan that would meet your needs.
If so, you can fill out a small loan application and sign a loan agreement after approval. Some credit unions will charge a flat $20 fee for original PALs, so be sure to factor that into your costs.
Try a national bank for small loans
It is less common among large banks to make small loans. These types of products are tightly regulated and are not as profitable as larger debts, such as car loans and mortgages.
Some national banks, however, have options for borrowers looking for small personal loans.
PNC Bank and US Bank, for example, offer small unsecured personal loans with starting capital as low as $1,000. This is one of the lowest starting balances offered by a major bank.
TD Bank offers a TD Express loan that starts with balances of $2,000. The bank requires average or better credit (a score of 660 or higher) to qualify for this type of loan.
CitiBank also offers small loans, with balances offered as low as $2,000. However, you will usually need to already be an established Citi customer to meet the bank’s loan requirements.
Wells Fargo offers small personal loans with balances starting at $3,000.
Avoid costly small loans
Unfortunately, small loan borrowers are often in dire need of financing and have few other options for borrowing money. For this reason, small loans are the bread and butter of predatory lenders.
When shopping for small unsecured personal loans, it’s best to ignore options such as payday loans, car title loans, cash advance loans, or similar products. These often carry high interest rates of up to 500% and pile up on fees that are often buried in the fine print.
Affordable loans are generally defined as those that maintain rates below 36% APR, according to the Consumer Financial Protection Bureau (CFPB). However, you might find yourself paying an annual percentage rate (APR) much higher than your stated interest rate due to unclear fees and shady terms hidden in the fine print.
Lenders may advertise a nominal interest rate, counting on borrowers to confuse it with an APR. Or there could be additional costs such as setup fees, extension fees or even prepayment fees that add to the cost.
Be sure to read the fine print of your loan and understand the costs. Failure to do so would be a serious personal loan mistake.
Get a smart repayment plan
To keep small loans affordable, you also need to choose a repayment plan that you can follow. Make sure your lender offers minimum repayment periods of 90 days. Anything less than that is a sign of predatory lending practices in the vein of a payday lender.
Avoid lump sum payments, which start small and grow as you go. This is another sign of predatory lending. Instead, get an installment loan with fixed payments. This way you will always know what you owe each month.
Overall, small personal loans can be a smart way to fund gaps in your monthly budget. In many cases, they are more affordable than other borrowing options like credit cards.
Whether you choose an online lender, a credit union or a major bank, make sure your small loan provider is reputable and offers favorable and affordable terms.
Rebecca Safier contributed to this story.