Almost everyone has those months when the budget gets tight. In times when there are more costs than you can currently afford, small personal loans under $3,000 can help fill in the gaps.
But finding small loans can be tricky since many lenders don’t finance personal loans of that size. Here’s what you need to know before taking out small unsecured personal loans, and where you can find them.
Where to find small personal loans
Many big banks and other major lenders set a minimum borrowing amount of $3,000 for personal loans. Because of this practice, borrowers looking for small loans under $3,000 to help 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.
Find small loans online
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.
Get small-dollar loans from credit unions
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) — 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. Under NCUA regulations, interest rates on PALs are capped at an effective 28% APR.
To get a PAL, 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 they do, you can complete a small loan application and sign a loan agreement upon approval. Most credit unions will charge a flat $20 fee for originating PALs, so make sure you factor that into your costs.
Try a national bank for small loans
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.
PNC Bank, for instance, offers small unsecured personal loans with starting principals as low as $1,000. That’s the lowest starting balance offered by any of the major banks.
TD Bank offers a TD Express Loan which starts with balances of $2,000. A loan application can be processed, approved, and funded within two days, according to TD Bank’s advertising. The bank does require average credit or above (a 680 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.
Small loans to avoid
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.
Skip payday loans
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% APR or more and pile on fees that are often buried in the fine print.
Watch for hidden fees
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 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 annual percentage rate. Or there could be add-on costs like origination fees, extension charges, or even prepayment fees that add to the cost.
The good news is that the CFPB is currently working on lending regulations that would protect borrowers from these hidden fees. In the meantime, make sure you read your loan’s fine print and understand the costs. Failing to do so is a major personal loan mistake.
Get a smart repayment plan
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.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|5.81% – 15.37%1||$5,000 - $100,000||Visit SoFi|
|6.87% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|5.49% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|