Last updated: 16/10/2020 | Estimated Reading Time: 4 minutes
Best ways to get a small loan
A small loan can be a good way to get the money quickly, including in emergencies. They often tend to have high interest rates, however, but there are ways to reduce the amount that you will have to pay in interest repayments with a bit of shopping around.
In This Guide:
- What are small loans?
- How do I get a small loan?
- How do small loans affect my credit score?
- How to find the best small loans
- Alternatives to small loans
What are small loans?
Small loans usually range from a few hundred to a few thousand pounds, and can be sourced from a number of places, such as banks or credit unions. They are almost exclusively unsecured, which means that they are not guaranteed by anything you own, such as a house or a car.
They tend to have high interest rates, however, as there is little incentive for lenders to give out small amounts of money if they are not getting much back.
One good thing about small loans, is that lenders almost never check or insist to know what you are spending the money on, giving you freedom over your finances.
How do I get a small loan?
Securing a small loan follows a similar process to getting most loans. All you have to do is provide some details, such as your employment status and your credit rating, which will be used to calculate how much you will need to pay in interest.
Having a good credit score will increase the chances of your loan getting accepted, as well as giving you lower interest rates.
How do small loans affect my credit score?
Small loans affect your credit score in the way any other loans do. If you are late on repayments, it will have a negative impact on your score. On the other hand, however, if you are completely up to date with you are consistently on time with your payments, you will see your score increase.
How to find the best small loans
The best way to assess your options for small loans is to do an online loan comparison, which you can do with Money Expert. This allows you to undertake a ‘soft’ search, which can give you a selection of options where your loan is likely to get accepted. You can then get a feel for the sort of amounts you will need to pay back, and where you are more likely to get cheaper interest rates.
The ‘soft’ search, allows you to compare your options without having to apply for loans, which can negatively impact your credit rating in the future, particularly if you do not end up taking the loan which you applied for.
Alternatives to small loans
Given that the interest rates for small loans can be quite high, it is important not to make sure that you end up spiralling into a cycle of debt, as it can be hard to keep on top of ever growing repayments. There are other options for gaining quick cash, which we will go into here:
- 0% interest credit cards: A number of banks offer credit cards which can provide you with money at zero percent interest for the first few months. This is good if you know that you have money coming in at a certain time, but make sure that you do, as the interest rates can spike quickly after this time has passed.
- Arranged overdraft: Overdrafts in many ways act as loans, in simple terms, the bank provides you with money, and then they charge you interest on it. These interest rates can be quite high, however, if you contact the bank, they may be able to provide you with cheaper rates on your overdraft.
- Peer to peer lending: This is a fairly new phenomenon in the era of the internet. Peer to peer lending sites allow people to borrow from those willing to lend directly, without the need for a bank. As such, the interest rates tend to be cheaper than many traditional routes for borrowing.
- Payday loans: Payday loan companies offer short loans for small amounts of money. However, we recommend you stay clear of these as much as possible, as their interest rates can be extortionate, often hundreds of percent APR.
