Sometimes a small loan is all you need to cover a big purchase or make it through the month. In these instances, small personal loans under $3,000 can help fill in the gaps.
While some banks don’t finance small personal loans, there are some lenders that offer personal loans starting at $1,000. Here’s what you need to know about taking out small, unsecured personal loans, and where you can find them.
Where to find small personal loans
Most big banks and other major lenders set a minimum borrowing amount for personal loans. Because of this practice, borrowers looking for small personal loans to cover short-term costs might have to shop around.
If you know where to look, however, it’s possible to get small unsecured personal loans from a reputable lender. Here are six tips to bear in mind as you hunt for a good lender that fits your situation.
- Start your search with LendingTree
- Find small loans online
- Get small-dollar loans from credit unions
- Try a national bank for small loans
- Avoid expensive small loans
- Get a smart repayment plan
LendingTree, the parent company of Student Loan Hero, should be your first stop when searching for a small personal loan. With dozens of lenders that participate on the LendingTree platform, including many of those listed below that offer smaller loan amounts, you can easily compare loan offers by filling out a single online form.
In addition, LendingTree will only perform a soft pull on your credit, meaning that there is no risk of your credit score being hurt from using their service. Here at Student Loan Hero, we recommend that you start with LendingTree first so that you can be sure you are getting the lowest rate and most attractive terms on your small personal loan.
Online personal loan providers might be more likely to offer flexible borrowing solutions. There are several top personal lenders that offer small-dollar loans to borrowers:
- Upstart, Lending Club and Upgrade all offer loans starting at $1,000
- Avant personal loans start at $2,000
Make sure you do a thorough search and compare costs, however, to pick the best online lender for your small-dollar loan.
Also, be aware that the balances you’re offered by an online lender might be influenced by your state. Each state has different rules and regulations on lending, which can affect how much you can borrow through an online personal loan.
As not-for-profit organizations, credit unions often provide unique products that give customers wider access to affordable financing. In fact, the National Credit Union Association (NCUA) has set up regulations for payday alternative loans (PAL or PAL II) — small-dollar loans that provide a less expensive credit option over payday loans.
With payday alternative loans, federal credit unions can offer small personal loans between $200 and $1,000, with repayment terms of one to six months. The more recent PAL II loans can go up to $2,000 and have a maximum repayment term of 12 months. Under NCUA regulations, interest rates on PALs and PAL IIs are capped at an effective 28% APR.
To get a PAL or PAL II, you must be a member of the credit union for a month or more. Check with your credit union and see if they offer a small-dollar loan that would meet your needs.
If it does, you can complete a small loan application and sign a loan agreement upon approval. Some credit unions will charge a flat $20 fee for originating PALs, so make sure you factor that into your costs.
It’s less common among major banks to provide small loans. These types of products are closely regulated and not as profitable as bigger debts, like car loans and mortgages.
Some national banks have options for borrowers seeking small personal loans, however.
Both PNC Bank and US Bank, for instance, offer small unsecured personal loans with starting principals as low as $1,000. That’s one of the lowest starting balances offered by a major bank.
TD Bank offers a TD Express Loan which starts with balances of $2,000. The bank requires average credit or above (a 660 score or higher) to qualify for this loan type.
CitiBank also offers small loans, with offered balances as low as $2,000. However, you’ll typically need to already be an established Citi customer to meet the bank’s requirement for the loan.
Wells Fargo offers small personal loans with balances that start as low as $3,000.
Unfortunately, borrowers of small-dollar loans are often in dire need of financing and have few other options for borrowing cash. Because of this, small loans are the bread and butter of predatory lenders.
When shopping for small unsecured personal loans, it’s best to skip options like payday loans, car title loans, cash advance loans or similar products. These often carry high interest rates up to 500% and pile on fees that are often buried in the fine print.
Affordable loans are usually defined as those that keep rates under 36% APR, according to the Consumer Financial Protection Bureau (CFPB). However, you might find yourself paying a much higher effective annual percentage rate (APR) than your stated interest rate through unclear fees and shady terms hidden in the fine print.
Lenders might advertise a nominal interest rate, counting on borrowers to mistake it for an APR. Or there could be add-on costs like origination fees, extension charges or even prepayment fees that add to the cost.
Make sure you read your loan’s fine print and understand the costs. Failing to do so would be a major personal loan mistake.
To keep small loans affordable, you also need to pick a repayment plan you can keep up with. Make sure your lender offers minimum repayment periods of 90 days. Less than that is a sign of predatory lending practices in the vein of a payday lender.
Avoid balloon payments, which start small and get bigger as you go. These are another sign of predatory lending. Instead, get an installment loan with fixed payments. This way you’ll always know what you owe each month.
Overall, small personal loans can be a smart way to finance gaps in your monthly budget. In many cases, they’re more affordable than other borrowing options like credit cards.
Whether you choose an online lender, credit union or major bank, make sure your small loans provider is reputable and provides favorable and affordable terms.
Rebecca Safier contributed to this story.