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Small loans are most useful in a financial emergency. Sometimes, something happens and an unexpected expense comes up and you have no way of covering it out of your own funds. Instances like these could benefit from small loans. They are generally small amounts that are payable within a short time and could be ideal if you just need a financial stop-gap to cover an urgent expense.
Loans Through Payday lenders
They can offer payday loans, which can be between £100 to £1,000 which is payable on your next payday. Generally, they are charged a really high interest rate, but if you are sure that you can pay off the loan amount and the interest rate by the end of the month, this can be a useful tool since the application is easy and approval is fast.
You may refer to online lenders too if you have an urgent cash need. While they have their own criteria that they’ll require borrowers to meet to be considered for loan approval, generally, they are known for fast processing and even faster funds disbursement. They do not usually care much for the borrower’s credit score but instead focuses on the income he’s earning to assess whether he can afford the loan he is taking out or not. They do charge high loan fees.
If you want a way to get access to smaller cash but do not want to get subjected to high interest rates, you may take out a small loan from a credit union. They may offer alternatives to payday loans which could range from £100 to £1,000 which would be perfect if you have an urgent small expense that needs to be covered.
Before taking out a small loan, always consider the fees and the interest rates involved. Try to shop around to find a lender that can offer the most reasonable rate and be sure to read the fine print before actually finalizing your borrowing.
Borrowing money from lenders does not mean that going for a large sum every time. Sometimes, all you need is a smaller figure that could help you pay for some urgent financial need. For many a sticky financial situation, all you really need is to borrow just a few hundred pounds.
However, the lending industry often offers the best loan rates for loanable amounts from £7,500 to £15,000, payable over three to five years. This means that getting a loan for a much smaller figure would often have high interest rates attached to it. Before you decide to take out a small loan, find out all about your other options first.
Understanding these types of loans
Most lenders will not have a problem offering small loans. In fact, most of them offer a much quicker process for this type of borrowing. If you have an emergency financial need, it makes sense to take advantage of this option since you can get the funds you need within the same day as the application is sent to the lender. Personal loans can range from £1,000 to £25,000 so before you decide how much to take out, consider how much you are allowed to borrow and how much you can afford to borrow as well. Remember, all of these will be dependent on your credit score, how much you are earning, and if you have any existing debts.
Small loans and your credit score
Always remember that any borrowing is always going to be noted on your credit record. Expect that banks and other lenders will always be able to see that you have availed of a small loan. They’ll see if you have missed repayments too.
Generally, whatever long-term impact your small loan application is going to have on your credit will ultimately depend on how you manage it. If you make the effort to pay it off on time, then you can trust it will look good on your credit file. Make late payments and your credit rating is certainly going to take a hit.
Alternatives to small loans
Due to the higher costs often attached to small loans, it might be more practical to consider other ways to raise the extra cash that you need. For instance, borrowing money from relatives or friends for a short term can be a good alternative.
You may also want to look into your current account and its overdraft facility as some charge less with other even having 0% as long as you stick to a specific limit. They are quick too and will give you access to funds right away.