Small Loans: The Ultimate Guide

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Looking for a small loan? Small personal loans with no credit check are very popular financing options because they are a low-stakes type of lending. The amount you borrow is minimal, so it cannot cover a large expense, but that means that it is easy to repay. The loan is quick and easy to get and quick to be repaid on a short term.

Is this the ideal financing solution for you? To find out, you will have to keep reading and see how small loans work, who can get them, and most importantly, what are the PROs and CONs of this kind of lending.

What Is A Small Loan?

Like the name indicates, small loans are unsecured loans for an amount that can be considered small. The fact that it is unsecured means that you do not need to provide any assets as collateral in order to secure this loan. Meant to cover small expenses, this kind of loan is suitable for short-term lending, and for individuals who would otherwise not be able to get a loan, such as people with bad credit, people who are unemployed, etc.

How Do Small Loans Work?

How do you get a small loan? You apply! Applications are quick and uncomplicated, and can usually be made online. You just have to find your ideal lender, determine how much you want to borrow, and fill out the application form with the relevant information. Then, you just need to wait to be approved and then receive your money. The process does not take long and it is conceived to allow everyone to borrow money quickly and easily.

Who can apply?

The beauty of a small loan is that you are much less likely to be restricted by outlandish requirements that you will surely fail to meet. Such a small loan does not come with a lot of strings attached and you don't have to worry about being approved as much as you would with other types of lending. A lot of companies who offer loans like this boast high approval rates, so essentially, anyone can apply! You just have to fulfill minimum requirements, such as being over 18, for example, being a UK resident, or having a bank account you can receive the money in.

How much can you get?

Since these are small loans, the amount you can get is not very large - typically, they start at around £50 and can go up to around £500. Of course, different lenders will have different ranges, and some will offer more than others, so you can find £1000 loans, for example. You just have to browse and consider several options before deciding what company you want to sign with.

For how long do you repay?

As you can imagine, the repayment period on a loan like this is not going to be very long. It depends on the amount you borrow, of course, and you can even expect to encounter companies that will offer you very short-term loans, with a repayment of 1 to 30 days. Most lending companies offer loans on a 3-repayments basis, so for a period of 3 months with regular monthly instalments. Then, there are options for slightly longer repayment terms, of up to 6 to 12 months, if you get a loan that is closer to the upper limit, so around £500 to £600, or even £1000.

What is the interest rate like?

This is where things get a little sticky - the interest rate is not in your best advantage, as it is quite high. All short-term loans come with high interest rates, especially those for bad credit; it's what makes a profit for lenders. Keeping that in mind, you can expect an APR of around 90%, but more often it's higher, around 270% or even close to 300%. If you get a 12-month loan, it would end up costing you a pretty penny.

Why might I need a small loan?

There are all sorts of reasons why one might be interested in getting a small loan. This kind of lending is suitable for a situation where you need money quickly, for a small, last-minute expense that you can afford to repay on a relatively short term. So, for example, let's say there was an issue with your paycheck this month and you'll receive your wage a few days later, but you need to pay rent, or some last-minute groceries.

Or, perhaps there is an unexpected bill or expense you have this one time, such as a medical bill, or a part you have to replace for your car or computer. Small loans can also cover things like large gifts for weddings, maybe smart clothing for an interview, etc. It's a personal loan, so it is meant to help you with your personal expenses.

[blockquote]If you don't get a clear interest rate from your lender, use an APR calculator - they are available online.[blockquote/]

Can I Get A Small Loan With Bad Credit?

If you’re not proud of your financial history and your credit score is something you would rather hide, you will be happy to hear that bad credit will not stop you from qualifying for this kind of lending. Small loans can be extended to individuals with poor credit histories, but you do have to be aware of some of the limitations this will entail.

Because this is an unsecured loan, you do not benefit from having your collateral provide security for you, which means that the lender only has your credit score to turn to. If that score is low, that will result in a higher interest rate, a lower borrowing limit, or a shorter repayment period, depending on what the lender requires to cover the risk.

The Advantages Of Small Loans

So, now you know some things about how small loans work, who can get them, etc. Let's look at what the advantages are, more specifically. Why would you opt for an unsecured personal loan like this, when there are other options available? Let's see what small loans have to offer.

You can get them quickly and easily

The biggest draw, perhaps, is that small payday loans like this are very easy to get. They are unsecured, so you don't need to have an asset to put up as collateral, which means you are also not risking losing that asset. But you will also not be made to jump through hoops and won't have to wait around forever, waiting to see if you are approved or not, like you would at a bank, for example. Some of these companies say that you can get the money in as little as 10 minutes and that their approval rate is close to 100%. You just need to meet the minimal requirements, and you're good to go.

They are easy to pay off

The other thing is that since the amount is so small, repaying it will not be that much of a hassle. With bigger loans, there is always that possibility lurking, that you won't be able to pay. Even if you have an excellent financial situation when you get it, who knows what can happen down the line? With small loans, however, you get a minimal amount that you then repay quickly. Almost everyone can afford to pay back a couple hundred quid, so you know this loan will not bankrupt you or drag your credit score down.

You can get them with bad credit

One of the problems that most borrowers encounter when looking for a loan is the fact that their credit score is not high enough. A bad score can severely affect your chances of receiving a loan, or at least getting it at a rate that is reasonable. A lot of companies will straight-up deny you if you have a poor credit history, especially if you are looking to borrow a higher amount. That will not happen with small short term loans; this can be the financing solution that helps you out in a pinch.

The Disadvantages Of Small Loans

Small loans certainly have benefits, but if you are considering getting one, then you also need to be aware of the possible drawbacks this option presents. Here are some of the things to keep in mind that may very well put you off opting for this financing solution.

You don't get a lot of money

This may be a very obvious point to make, but it's worth saying anyway - you don't get a lot of money with a small loan, which you can guess from the name. The maximum you can expect is £1000, which, depending on what you need it for, might not help you as much as you thought it would. Especially if you need to put down a deposit for a letting or something like that, an amount like this will not get you very far. And if you need a loan for a major expense, like purchasing an appliance, then you might as well look elsewhere, because a small loan probably won't cover it.

The repayment term is very short

Because the amount is not high, the repayment term is not exceedingly generous, either. In fact, for very small amounts, you may even be required to repay in just a few days. That can certainly be manageable, but it also puts a lot of pressure on you to be able to procure that money fast and be able to pay it back within that very short time-frame. And if something were to happen, then you might end up creating more trouble than you had in the first place by unintentionally defaulting on this loan. You don't need the bad credit score that results from situations like that.

The interest rate is high

Like all small, short-term loans, the lending company has to make a profit somewhere, so in exchange for the convenience and speed of service, they charge you a truly eye-watering APR that can even come close to 300%. Obviously, that is going to vastly increase the amount you need to repay, especially if you get a 12-month loan. In that case, you will end up repaying double or triple the amount you borrowed, which is not at all a good move, financially, and may not be viable, long-term.

What Are The Alternatives To Small Loans?

If you’ve decided that small loans are not the right option for you, then you might want to look into similar alternatives that will meet your needs. Here are some options that can fulfil the same role as a small loan.

Interest Rates

Payday loans

Payday loans are some of the most popular small, short-term loans on the market. They are traditionally offered for one-month periods, or until “payday”, but in recent years, their repayment periods have extended to several months. One of their main advantages is that they are available for pretty much anyone, regardless of their financial situation, but like most options for bad credit, this type of lending comes with a high interest rate. The other advantage is that they are widely available, so no matter where you are, you can count on being able to get a payday loan. The disadvantage is that the interest rate is high even for individuals with decent credit, which can make this option less convenient.

Same day loans

If you’re ever in a financial emergency or you need money fast with no time to lose, same day loans may be your best bet. Very easy to access online and with an exceptionally speedy application process, with same day loans, the money can even reach you on the same day, hence the name. Just make sure that you meet all the requirements and that you have any necessary documentation ready, so that the process can be as quick and painless as possible.

Doorstep loans

For cases where it is difficult to leave the house – either because you’re busy, or because you have mobility issues – doorstep loans can be an excellent solution. Doorstep loans are, perhaps, the most convenient type of lending out there, because you do not have to lift a finger. Every step of the process is made simple by the fact that a lending agent comes to your door. They will come over to review your financial situation, deliver your loan in cash, and even pick up the loan instalments, once you start repaying. There is no easier way to get money, if time is a luxury you cannot afford, if you have a disability, etc.

Credit cards

Depending on how you're planning on spending your loan, sometimes credit cards are the easier, more convenient solution. Especially if you're having trouble being able to afford everyday expenses, for example, a credit card can come in handy because you always have your available overdraft. Instead of getting payday loans over and over when the money runs out, it may be worth looking into a card, instead. In addition, you may find that the interest rate, while still high, is more advantageous, especially if we're talking about relying on this financing solution long-term.

Small Loans vs. Credit Cards - Which One Is Better?

Okay, so we've already offered credit cards as a viable alternative to small loans, but that still leaves the question of which is better. In the battle of small loans vs. credit cards, who will emerge victorious?

Small Loans

If you don't already own a credit card and you need money fast, it's not like you have time to wait around to apply and be approved for a credit card, right? So small loans win when it comes to speed. The other thing to take into consideration is the fact that if you have bad credit, you will be rejected for a credit card, but you can certainly get a small loan with bad credit.

Credit Cards

Cards are obviously immensely popular, with the UK having a whopping 108.4 million contactless cards in issue as of 2017. Of these, 35.8 million are credit cards, according to The UK Cards Association. The reason for this is that they are extremely convenient. They're always at your disposal, in your pocket, which is a blessing and a curse. On the one hand, they're convenient, but on the other hand, they enable impulse purchases and can push you further into debt. But if nothing else, one advantage that credit cards have over small unsecured loans is that the interest rate is smaller. However, consider yourself warned that unsecured credit card debt is high in the UK and the interest rate is higher than on regular loans, so tread carefully.

Benefits Of A Small Unsecured Loan vs. A Secured Loan

Obviously, small unsecured loans and secured loans are quite different financing solutions, but they both offer benefits for different circumstances. Neither is necessarily superior, but you may find that one fits your needs better than the other one.

Small Unsecured Loan

When should you get one?

A small unsecured loan is a viable solution when you are looking for a small amount of money and a short-term repayment arrangement. This is suitable for someone who is looking for quick borrowing, with minimal hassle, and who either does not have assets to put up as collateral, or does not want to risk their assets.

What does it offer?

First of all, a small unsecured loan offers speed and convenience. You can get it very quickly and with relatively few strings attached. So, if you find yourself in a situation where you need money urgently and you don't know where to turn, you will be able to complete the application process quickly and get your money in a matter of hours, or even minutes, depending on the lending company.

Secured Loan

When should you get one?

A secured loan is appropriate when you need a larger amount of money that you can either not get with an unsecured loan, or that will result in repayments that are too high for unsecured lending. A secured loan is usually taken out in order to make large, important, long-term purchases, such as a house, or a vehicle, but you can also get them to pay off a wedding, an expensive trip, etc. Of course, you should get this kind of loan if you have the necessary asset to put as collateral and if you are okay with potentially putting it at risk.

What does it offer?

A secured loan gives you a larger amount of money, first of all, but also a longer repayment term, as well as smaller instalments with a lower interest rate. It's good if you are making plans for the future and if you have a stable financial situation. However, you will be on the hook for this loan for several years to come, so it is certainly a long-term commitment that needs to be considered carefully.

Before applying for loans or credit cards, make sure that you are actually likely to get approved; otherwise, rejection will drag your credit score down.

In conclusion, small loans are suitable for everyone who needs money quickly and on a short term basis. Obviously, the amount is not massive, but it can be enough to cover an unforeseen emergency expense if you are taken by surprise, you have no other option, or it's on very short notice. It can be a good option to rely on, but like any other financing solution, it also comes with drawbacks that may give you pause. Whether or not it is worth borrowing money this way is up to you to decide, once you've perused all the information and made up your mind.

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