How to get a small loan: 3 steps to find and apply for one

Small dollar loans are short-term, low-cost installment loans of less than $2,500 aimed at borrowers with little to no credit. They are highly regulated at the federal and state levels, so the application process is streamlined, but requirements can vary depending on the bank.

Compared to traditional loans, getting approved for small dollar loans is relatively easy. Still, you should research your options because they are not as widely available as traditional personal loans.

1. Research your options

Not all financial institutions participate in the Small Dollar Program. However, small dollar loans have become more widely available due to their increasing popularity. When looking for this type of loan, consider the following options:

• Select national banks. Six of the eight largest national banks have started offering small dollar loans to consumers in the past five years. As of 2023, Bank of America, Huntington Bank, Regions Bank, Truist, US Bank, and Wells Fargo will all offer small dollar loans to their customers.
• Community banks or local credit unions. If you’re already a customer or prefer a local lending experience, ask for and compare small loan offers from community banks and local credit unions. These institutions tend to be more flexible with their lending criteria than national banks, so it can be easier to secure a small loan dollar from them.

Institutions require borrowers to have an account to qualify for small dollar loans. If you choose to get a loan from a credit union, you will need to become a member. The requirements are generally easy to meet and are based on factors such as location, profession and association. Some credit unions may also accept donations to a specific nonprofit organization for membership.

That said, it’s always a good idea to start your search at an institution where you already have an account, as the process will be much faster.

2. Make sure you qualify

Unlike traditional underwriting, which focuses primarily on credit score and history, small loan approval is based on your recent banking activity. Account information such as withdrawals, deposits, overdrafts and account status are taken into account, as well as income and employment history.

While there are general approval requirements for a loan: the Small Dollar Loan Program legal requirements stating that the loans must be “underwritten according to standards that take into account the consumer’s ability to repay.”

Although documentation requests may vary, these are some of the most common requirements that borrowers must meet:

• Be at least 18 years old.
• Make sure you have a government-issued ID.
• Have an active checking account in your legal name (at a participating bank).
• Provide at least two recent pay slips.
• Pass an employment verification check.

Even though these loans are intended for borrowers with low credit levels, it is still possible to be denied based on your recent account history. For example, if you’ve experienced bounced checks, multiple overdrafts, or associated accrued fees in recent months, you’ll likely have a harder time getting approved.

Additionally, if you don’t have a checking account with a participating bank or credit union, you won’t be able to get an immediate loan when you open an account. According to Pew’s Affordable Letter of Credit“The major banks that offer small loans all require a minimum of three months of account history before customers can qualify for these loans, while some smaller banks and credit unions will make loans based on just one month of account history.”

3. Sign up and get your money

The applications can be completed online or via the bank’s mobile banking app. If you prefer personal assistance, call your local branch and ask if customer support is available.

Due to the simplified underwriting process, it will likely only take a few minutes to complete the application. To simplify the process, you should have all the necessary information and documentation at hand.

You should receive your application results one working day (or 24 hours) of submitting the required documentation. Once approved, you sign all applicable loan documents and the money is deposited into your account.

When should you apply for a small dollar loan?

Small dollar loans can be a great alternative to emergency loans, such as payday loans. That’s because they offer significantly lower rates, a more reasonable repayment term, and fast financing.

That said, they may not be the best alternative for everyone due to their lower limit. For example, small dollar loans can be ideal to pay for an inexpensive car or home repair and certain medical expenses.

If you need to borrow money for purposes other than an emergency, a traditional personal loan may be a better choice. Some lenders – especially online – offer bad credit loans for people with imperfect credit. Although these loans are typically more expensive than small dollar loans, borrowers have more flexibility in using them. These loans also have much higher amounts and longer repayment terms than small dollar loans.

Before signing up, weigh the pros and cons of each option to ensure you choose the best option for your situation.

Frequently Asked Questions

• What Qualifies as a Small Dollar Loan?

  According to the Community Development Financial Institutions FundA small dollar loan is a loan that:

  • Not to exceed $2,500.
  • Will be repaid in installments.
  • Reported payments to the credit bureaus.
  • There is no penalty for prepayment.

• How can I get a small loan quickly?

  The fastest way to get a small dollar loan is through your current bank or credit union. You don’t have to go through the process of opening a new account, and if your account is in good standing, the process becomes even faster.

• Where can I get a small loan online?

  Banks and credit unions participating in the Small Dollar Program have online and mobile portals that allow existing customers to virtually apply for a small dollar loan.

• What small dollar loans are easy to get approved for?

  Small dollar loans do not require a credit score for approval like most traditional loans. However, this does not mean that everyone will be approved. Your eligibility largely depends on your routine bank account information and activities. All things considered, it can be easier to get approved for small dollar loans compared to personal loans, as long as your bank account is in good standing.