Key learning points
-
Determine how much money you need before signing up and make sure you are happy with the payment.
-
You may qualify based on your banking activities and not your credit score.
-
Small dollar loans are a flexible and more affordable alternative to expensive payday loans.
If you need money quickly to cover an unexpected expense of less than $2,500, knowing how to get a small loan might give you the financial help you need. You will have more time to pay off the loan than a personal loan and it may be easier to qualify for a small dollar loan compared to other bad credit loans.
Typically, it only takes three steps to receive a small dollar loan. Follow them completely and consider the pros and cons before signing up to get the best deal for your finances.
How to Choose the Best Small Dollar Loan
1. Start with your local bank
Most major banks, many small banks and credit unions offer small credit loans based on your banking activities rather than your credit history. You should contact your bank to see if they offer small credit loans and ask about approval requirements.
If your account shows regular deposits from your paycheck and you use it to pay regular bills, the lender may approve your loan based on a review of a few months’ worth of transactions.
Small dollar loans and credit scores
Check your credit history before applying for a loan, regardless of approval requirements. Check with your bank or credit union to see if you have free credit monitoring as part of your account.
2. Determine how much you need and run the numbers
According to a Pew study Among small loans, most major banks offer maximum loan amounts of $500, $750 and $1,000, with a minimum loan size of $10 to $250. Credit unions and community banks can offer loan amounts as high as $1,500 or $2,000.
The loan term is typically three to four months, but the small dollar loan program allows lenders to extend the payoff for up to 36 months. Also make sure you add an extra cushion for costs; these will be deducted from your loan amount before you receive your money.
3. Shop around and weigh your options
After checking the loan amount with your local bank, the next step is to compare your options.
- Request quotes from different lenders. Check APR and fee estimates with at least three different lenders. One note: If the rate is higher than 36 percent, you are not working with a legitimate small loan provider. Federal regulations limit low interest rates. If the interest rate is higher, you may be working with a predatory lender.
- Choose refund terms. Many major banks offer terms of three to four months. Others may offer terms as long as 36 months. The shorter the term, the higher the payment, but the less interest you pay in total. But there’s no minimum monthly payment option like there is with a credit card, so make sure the monthly payment doesn’t strain your budget.
- Assess the costs. Most lenders charge a flat fee, although some may set an APR that is part of your monthly payment.
- Financing timeline. Lenders typically offer same-day financing for small-dollar loans, while other lenders require several business days to finance. Ask your lender about the turnaround time, especially if you need the money urgently.
Alternatives to Small Dollar Loans
Several other options may meet your needs if you don’t qualify for small-dollar loans or if your local bank doesn’t offer them.
- Borrow from a friend or family member. You may find a family member or friend who is willing to help you when you are in trouble. Be sure to set expectations about repayment up front to avoid damage to the relationship later if you are unable to repay the balance.
- Personal loans. If you receive a regular paycheck and have a credit score of at least 550, you can borrow less than $2,500 with a personal loan with a term of just six months. Most lenders offer maximum APRs of 36 percent, but there are personal loan companies with triple-digit interest rate programs, so check the fine print before opting out.
- Peer-to-peer lending. Instead of applying to just one bank, peer-to-peer lending gives you the chance to be considered by multiple investors. You may get approved for some or all of the amount you need on terms similar to bad credit personal loans.
it comes down to
When you’re faced with an unexpected expense of less than $2,500, knowing how to get a small dollar loan can provide much-needed financial relief. With a focus on banking activities rather than credit score, these loans offer flexibility and affordability compared to payday loans. And if small dollar loans aren’t available, there are other alternatives that may meet your needs. Think carefully about your financial situation and needs before applying for a loan.
