Americans take out small personal loans for all kinds of different reasons.
According to a study conducted in 2018, about 34 percent of people do it to cover household expenses. About 23 percent of people do it to consolidate their debt. And about 9 percent of people do it to cover the cost of a move.
Regardless of the reason, small personal loans can be an effective way to get your hands on money you need quickly. As long as you have a plan for paying back the loan, it can really come in handy for the average American family.
But before you start searching for a lender to provide you with a personal loan, take the time to educate yourself about them. By learning how they work, you can prepare yourself for everything that comes along with applying for one.
Here’s everything you need to know about small personal loans.
Small Personal Loans Come in Many Different Dollar Amounts
Small personal loans have become very popular among Americans, at least in part, because you can apply for a loan in almost any dollar amount.
Some people will apply for personal loans of just $100, while others opt to apply for loans in the amount of $10,000 or more. Each lender is a little bit different, but you can usually find personal loans for as little as $100 and as high as $40,000.
Before you apply for a personal loan, crunch the numbers and figure out how much you really need to work your way out of whatever financial bind you’re in. It’ll help you choose the right dollar amount for your loan.
They Can Be Used for Lots of Different Things
You can apply for small personal loans for just about any reason. While Americans use them most often for household expenses, debt consolidation, and moving, as we mentioned earlier, there are also other reasons they apply for them.
Here are some of the reasons you might consider applying for a personal loan:
- To buy a vehicle
- To pay off medical expenses
- To finish a home improvement project
- To fund your business
- To purchase Christmas gifts
As you can see, you can apply for a personal loan for almost anything. Personal loans have gotten many people out of big binds over the years.
They’re Unsecured and Don’t Require Collateral
One of the biggest advantages of taking out small personal loans as opposed to other types of loans is that most personal loans are unsecured.
This means you won’t have to put up a piece of property or another type of collateral to cover your loan. If you default on the loan, the lender won’t be able to come after you and seize something from you to force you to pay.
That doesn’t mean a lender can’t take any action against you. They can report your delinquency to the credit bureaus, bring in a collections agency and have them go after you, or even file a lawsuit against you.
But because most personal loans are unsecured, you won’t have to worry about losing a valuable asset if, for some reason, you can’t pay off your loan.
They Tend to Have Fixed Interest Rates Attached to Them
Not all small personal loans have fixed interest rates. But the vast majority of them do, which is great for consumers who decide to take one out.
When you apply for a personal loan and are approved, you will find out what your interest rate will be and have the opportunity to accept it if you want. The interest rate will determine how much interest you’ll pay over the life of your loan.
Those with great credit will often get access to personal loans with lower interest rates, while those who don’t have great credit will often be offered personal loans with slightly higher interest rates.
But no matter what interest rate you’ve given, you won’t have to worry about it going up or down as you pay your loan off. It’ll stay intact as long as your personal loan came with a fixed interest rate from the beginning.
They Often Need to Be Paid Off Within a Specific Repayment Period
When you take out small personal loans, you won’t get the chance to choose when you want to pay it off. Unlike a credit card balance, a lender that gives you a personal loan will expect to be paid back within a specific repayment period.
The repayment period for a personal loan can vary, depending on a number of factors. But in general, you’ll usually have anywhere from 1 to 60 months to pay off the balance of your loan, including interest.
If you choose to pay off your loan quicker, your payments will be a lot higher every month. However, you won’t pay as much interest.
If you choose to pay off your loan over a longer period of time, your payments will be a lot lower every month. However, you will end up paying more money overall to the lender that approves you for a personal loan.
Some lenders will also tie specific repayment periods and interest rates together as a package deal. They may offer to give you a lower interest rate if you agree to pay off your loan more quickly.
Research your personal loan options thoroughly to find the repayment period that works best for you.
They Can Typically Be Paid in Full Early Without Penalty
In some cases, a person will take out a small personal loan and then realize that they have enough money to pay it off much earlier than the lender was expecting them to.
More often than not, the lender will gladly accept full payment from them and send them on their way. There is usually not a penalty or fee attached to paying off a personal loan early.
That being said, you should always check with your lender before doing this. There are some lenders that will charge a penalty fee to those who repay their personal loans too quickly.
That doesn’t mean it’s not a good idea to pay a personal loan off early anyway. But it does mean you should read the fine print to see if you’re going to get hit with a penalty for doing it.
They’re Usually Only Available to Those With Fair Credit or Better
Not everyone is eligible to receive small personal loans. You’re more than welcome to apply for one at any time, but your credit score could prevent you from getting approved.
There are certain lenders that will only do business with those who have very good credit scores. There are others who are a bit more lenient and willing to take chances on those with fair or even poor credit.
But generally speaking, you’ll need to have at least fair credit to get a lender to even think about granting you a personal loan. It’s why many people will try to bring their credit scores up as high as they can before applying for a loan.
Check your credit score and your credit report prior to putting in a personal loan application. You’ll probably be able to figure out how seriously lenders will take you when you apply for a loan.
They Will Have an Effect on Your Credit Score If You Qualify for One
In the event that you do qualify for a personal loan and convince a lender to approve you, your loan is going to have an effect on your credit score.
Initially, a personal loan may bring your credit score down slightly. However, you can improve your credit score by paying down your personal loan over time. Maintain your credit score by making personal loan payments on time month in and month out.
The last thing you want to do is start missing payments on your personal loan or stop paying down your personal loan debt altogether. This will have a profound impact on your credit score, and it could land you in collections before long.
If, at any point, you suspect you might struggle to make a payment on your personal loan, contact your lender right away. Most lenders would rather work out some kind of alternate repayment plan with you as opposed to having you default on a loan.
The worst a lender can do is say no to you when you ask them to let you make a payment late or skip a payment. It’s worth investigating how you might be able to square things away with them before it’s too late.
They Won’t Provide You With Any Available Credit as You Pay Them Down
Some people get a personal loan from a lender and are under the assumption that they’ll free up available credit by paying it down. They believe personal loans work the same way credit cards do.
Unfortunately, this is not how it goes with personal loans. You won’t be able to earn yourself any available credit.
If that is something you’re interested in, you might be better off applying for a credit card as opposed to a personal loan. A credit card will allow you to use a revolving line of credit and continue using it as long as you stay in good standing with your credit card company.
They’re Easy to Apply for and Can Help You Get Money Quickly
Applying for a personal loan for any reason is a lot easier than you might think.
Many years ago, you would have to take a trip to a bunch of banks and other lenders and convince them to give you a loan. That simply isn’t the case anymore.
In 2018, the internet has made it possible for anyone to sit down and apply for loans from lots of different lenders in a matter of just minutes.
To get a personal loan, all you need to do is fill out a loan application. A typical application will ask you for:
- Your name
- Your address
- Your employer
- Your income
- Your banking information
- And more
On average, it should only take 5 to 10 minutes to fill out an application for a personal loan. And once you’re done, it’ll only take a short time to find out if you’ve been approved.
If you are, the money that you requested can hit your bank account in just a few days in many cases. The speed at which all this happens is very appealing to many Americans and entices them to put in an application of their own.
They Have Helped Many American Families With Financial Struggles
Small personal loans get a bad rap in some circles. But they have helped millions of American families in need.
Without personal loans, some people wouldn’t have been able to afford the car they’re driving around in right now. Others would still be ducking and dodging calls about medical expenses. And a few might even be living out on the streets and trying desperately to get their lives back together.
There is no financial struggle too big or too small for a personal loan. If you make an effort to find the right loan and get an interest rate you’re comfortable with, you’ll put yourself into prime position to pay it back in a matter of just a few years.
Personal loans are an amazing financial tool when they’re used properly and have benefitted American families in so many different ways.
Do you think you and your family could benefit from one of the small personal loans available right now?
Start searching around for personal loans and see which ones suit you best. Then, begin applying for the ones that you think give you the best chance to qualify for a loan.
You can use your loan to pay down some debt that’s been hanging around for far too long. Or you can use it to literally keep the lights on in your home.
Check out our blog for more information on small personal loans and other types of loans that are available to all Americans.