Small loans can be a veritable life saver if you're ever in a situation when you need some money relatively quickly, but not a massive amount. They are small, unsecured loans, that can also be categorised as payday loans and that you can get relatively quickly, and sometimes even without a credit check. They can be small personal loans or even small business loans, if that's what you need. Not sure if this is the right financing solution for you? Take a look at some of the reasons to apply for a small loan.
What Are The Common Reasons To Get A Small Loan?
Ok, we know what a small loan is; but what can you use it for? Or, why do people usually get small loans like this? The reasons are numerous and varied: personal expenses, treats, presents, medical emergencies, everyday expenses, etc. Let's look at why this kind of loan can be a good financing solution.
Sudden decrease in income
Most people have a pretty good idea of what they can expect to take home at the end of the month and they budget accordingly - but what happens when your expected sum decreases? This can happen for a number of reasons: a manager can cut your hours, you can take a pay cut, you can skip a few days due to sickness, or in the worst case scenario, you may even lose your job. A small loan can help make up for the financial loss and tide you over until a more permanent solution is found.
I don't have to be the one to tell you that life is expensive. The bills pile up everyday and especially if you have kids, it can seem like every single day, you are spending more and more money. That's why a small loan can be incredibly helpful for those months when you just can't seem to be able to make ends meet.
We've all been there - one minute, everything is fine, and the next, your house is flooded because a pipe burst in the kitchen, or your boiler broke down, or your car needs a very expensive repair. An unforeseen situation like this would necessitate an emergency fund you can dip into, but since that's not something everyone can afford, a small loan is the next best thing.
We know we can't play fast and loose with our health; but still, we do it anyway. Medical bills can be prohibitively expensive, especially when it comes to unusual treatments, or even something as mundane as dental work or a pair of prescription glasses. Anything not covered under the NHS is going to cost you a pretty penny, and this isn't an expense you can forgo or keep pushing back forever. Your health is the most important thing you can invest in with a small loan.
Can It Benefit My Credit Rating?
Surely, going into debt by getting a loan is the thing that ruins your credit score, right? Well, that's not entirely true. You see, your score is impacted positively or negatively by your actions and financial decisions. It is not the mere act of taking out a loan that affects your credit score, but how you manage it. Therefore, the outcome can go into two very different directions:
You make late payments or default on the loan
Ok, so you got a small loan - let's say £500 - and you spent it all. You're meant to return it within 3 months, and the total amount to repay is £750. That's a £250 instalment per month, that you cannot afford to make. In the first month, you were a few days late making the payment. You made the second payment after dodging repeated phone calls from the lender, and you completely defaulted on your third payment.
Now, this is going to reflect very poorly on your credit score, because you have demonstrated that you are not a trustworthy and reliable person, so you present a significant risk for lenders. But even so, a poor credit rating is not the end of the world! Read up on how to get a small loan with bad credit.
You are diligent about loan instalments and repay on time
Now let's look at the other side - you got the same £500 loan, with the exact same payments. However, you went and set up a direct debit so that all of your payments were made on time; in fact, they were made a few days earlier, just to make sure they went through. Before getting the loan, you made sure you were able to afford to payments and if money was tight, you cut back on other expenses.
In this scenario, your credit score will actually go up, because this loan was a quick, easy, and relatively low-maintenance way of increasing your score. You proved that you are a reliable customer that takes their financial responsibilities seriously. The more payments you make on time, the better your score will be. Thus, a small loan can be an excellent - and very clever - instrument to improve your credit rating.
All in all, as you can see, small loans can be good financing solution for multiple problems that may occur in everyday life. But if it's such an easy solution, why is it so hard to get a small loan? I'm afraid that depends entirely on your financial situation, as well as your credit rating. Perhaps looking into small loans for bad credit can help you out, but you can also request advice from a free resource like the Money Advice Service.