There are a lot of scenarios that can lead to you needing a small personal loan. Maybe your roof needs to be replaced immediately, and you don't have enough cash on hand to cover it. Or maybe you have a lead on a great investment opportunity, but you have to move now if you want to get in on the ground floor. Whatever the case, what you need is a personal loan. Not a large one, like a mortgage loan – you just need a small loan to take care of the immediate expense. So where do go? It turns out that you have several different options. The one that's right for depends on your personal financial situation and your credit history. Take a look at some of the most helpful options for small loans.
Your Bank or Credit Union
In general, banks and credit unions offer two types of small personal loan options. You can either get a secured loan or an unsecured loan.
Secured Loans. A secured loan is the kind of loan that you get by putting up something that you own as collateral. This is similar to a mortgage loan, where your home is the collateral, but for smaller amounts of money, you can put up something that's less valuable as collateral, like a boat or a car. Secured loans usually allow you to borrow more money, have the least expensive interest rates, and offer the best repayment terms. However, you may not want to put up an asset that's valuable to you for a personal loan. Or, if the asset you want to put up for collateral is something that you're still paying for, you may not be able to borrow against it yet. In that case, you still have another option.
Unsecured Loans. Unsecured loans from your bank or credit union are also known as signature loans, because the bank lends you the money as soon as you sign for it, no collateral required. The bank or credit union will approve a signature loan for you based on your history with them and your overall creditworthiness. These loans will have higher interest rates than secured loans, and you probably won't be able to borrow as much money as you would with a secured loan, but a signature loan is a great option if you don't have collateral or want to put up one of your assets.
While it's a good idea to start with a bank or credit union that you already have a relationship with, it doesn't hurt to shop around and find out what rates are available in your area. However, don't apply for several loans just to see what you can get approved for. Too many hard inquiries into your credit history can actually harm your credit score by making it look like you're too desperate for credit. Don't apply until you're sure that you've found the right loan. For an indication of whether or not you're likely to be approved, go to sites and check your own credit score first (this type of inquiry won't damage your credit.) That will give you an indication of what kind of rate that you're likely to get without you having to apply for multiple loans.
Peer-to-peer lending is a new trend in the world of personal finance, and it's an increasingly popular one. This type of lending has emerged to fill the gap that exists for borrowers who don't qualify for a traditional bank loan but who need more money and have better credit than the typical payday loan customer.
Peer-to-peer loans can be for amounts as low as a few thousand, or as high as $35,000. You have to go through an application process to qualify, and you need a credit score of at least 640. Your loan will be funded not by a financial institution, but by individual investors who are interested in growing their money by collecting the interest that you'll pay as you repay the loan. It's a good deal for them, but it works out well for you too – the interest rates are usually lower than what you'd have to pay for a traditional bank loan. You'll also pay an origination fee based on your credit score, but that's the extent of the fees that you'll have to deal with, as long as you make your payments on time.
If you need just a small amount of money – from a few hundred to a few thousand -- that you'll be able to pay back quickly, you might consider using a credit card or getting a cash advance. However, for larger amounts of money that still qualify as small loans, bank loans or peer-to-peer loans are better options and more affordable options.
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