Best Small Personal Loans in 2022 - NerdWallet (2022)

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What is a small loan?

A small loan is generally a personal loan for less than $2,500. Repayment terms vary widely; reputable lenders give you at least a few months to repay a small loan.

Annual percentage rates — the interest rate plus any fees a lender charges — also vary, ranging from about 6% to 36%, with the lowest rates offered to borrowers with strong credit.

Pros and cons of small personal loans

Pros

  • Fast funding. Many lenders can fund a small personal loan the day you’re approved or the next day.

  • Lump sum. You get the funds from a personal loan all at once after approval. There’s no credit limit or draw period to remember.

  • Fixed payments. Personal loans have fixed interest rates that keep your monthly payment the same for the life of the loan.

  • No collateral. Most personal loans are unsecured, so collateral (like a house or car) isn’t required to borrow. If you don’t repay the loan, the lender can’t take any of your possessions, but your credit score will take a hit.

Cons

Where to get a small loan

Credit unions

To qualify you for a personal loan and determine your rate, many credit unions look beyond your credit score to information like your standing as a credit union member. Credit union personal loan amounts can start below $1,000.

Some federal credit unions also offer payday alternative loans, typically between $200 and $2,000, to borrowers with low credit scores. Federal credit unions charge maximum APRs of 18% for personal loans and 28% for payday alternative loans.

Online lenders

Loan amounts at online lenders start around $1,000 or $2,000. Many online lenders let you pre-qualify to preview potential small loan offers, including the APR and monthly payment, without affecting your credit score.

Capital Good Fund is one of few online lenders with low rates and loans that can be less than $1,000. These loans are available in only a handful of states, though, and loan amounts vary by state.

Banks

Personal loan starting amounts at banks are usually around $2,000, and banks typically prefer borrowers with good or excellent credit. However, some banks have introduced new small-dollar loans in recent years. Here are a examples:

  • The U.S. Bank Simple Loan is offered in amounts from $100 to $1,000 and is repaid over three months. The loan’s fee is $6 for every $100 borrowed.

  • Bank of America’s Balance Assist provides loans from $100 to $500 and is repaid over three months. The loan carries a flat $5 fee.

  • Truist’s Ready Now loan is offered in amounts from $100 to $1,000 and has a fee of $5 per $100 borrowed. The loan is repaid over six months.

  • Wells Fargo announced it will offer short-term small loans of up to $500 in late 2022. These loans will be repaid in three monthly installments, according to the bank.

Most banks require customers to have a bank account open for a few months before they can apply for a small loan.

How to compare small loans

Here are the most important features to compare when choosing a small loan.

APR: Annual percentage rate is the best apples-to-apples cost comparison for all loan types. The least expensive loan has the lowest APR.

Payments: Review your budget to see how much room you have to repay a loan. A personal loan calculator can help you see what rate and repayment term you’d need to get an affordable monthly payment.

Terms: Some small loans have a repayment term of a few weeks or months, while others can be repaid over a year or more. A long repayment term means you’ll pay more in interest, so find a term that keeps payments low but helps you clear the debt quickly.

Requirements: Some lenders prefer borrowers with strong credit and income, while others accept lower credit scores. Review a lender’s borrowing requirements to determine your likelihood of qualifying.

Funding time: Loan approval and funding can take a couple of days or up to a week, depending on the lender and how smoothly the application process goes. If you need the funds fast, look for a lender that offers fast loans.

How to get a small personal loan

  1. Review your credit and debts. Before applying, check your credit report for opportunities to address any negative marks or unpaid debts. Also, calculate your debt-to-income ratio, which lenders use to see how much of a borrower’s income goes to other debts. Many lenders prefer borrowers with DTIs below 40%.

  2. Pre-qualify. Since pre-qualifying takes a few minutes with most online lenders and doesn’t affect your credit score, it’s a quick way to compare small loans.

  3. Collect necessary documents. A loan application may require information like your Social Security number, W-2s and pay stubs. Gathering this information before you apply can speed up the loan application process.

  4. Submit the application. This part may be done in person with local banks and credit unions, but many lenders have online applications. If you’re approved, expect funding within a day to a week. Applying will temporarily shave a few points off your credit score.

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How to qualify for a small loan with bad credit

If you have bad credit (FICO score of 629 or lower), you may still qualify for a small loan from a credit union or reputable online lender, but your rate could be on the high end of the lender’s range.

Here are some ways to improve your chances of qualifying:

» MORE: Best bad-credit loans

How to spot a predatory small loan

A small loan from a predatory lender can damage your finances and trap you in a cycle of debt. Watch for these red flags when shopping for a small personal loan.

High interest rates: Reputable lenders cap APRs at 36%, the highest rate most consumer advocates say an affordable loan can have. Some high-interest lenders can charge triple-digit interest rates or high fees that make the loan difficult to repay.

Extra short repayment terms: Payday loans are so named because you repay them on your next payday — usually in two weeks or less. These loans require a balloon payment (all or most of the loan repaid at once) and may not give you enough time to pull the funds together.

» MORE: Alternatives to payday loans

Extra long repayment terms: Installment loans with long repayment terms are appealing because they have low monthly or bi-weekly payments, but some lenders draw out the repayment term for longer than you need in order to make more money on interest. An extra long repayment term, even on a small loan, could have you paying more than 50% of what you borrowed in interest.

No credit checks: A lender that approves you without checking your credit — or without at least reviewing a few months’ worth of bank account transactions — isn't trying to ensure that you can repay the loan. This means the lender either doesn’t care if you can repay or is betting that you can’t, which could lead you to borrow more money to pay off the first loan.

Alternatives to small personal loans

NerdWallet recommends exhausting cheaper alternatives before getting a small loan, even if you need the money for an emergency. Consider these options first:

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