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A small loan is a type of personal loan that is not secured against any collateral, such as your home or your car. CashLady takes a closer look at how small loans work and how you can apply for one.
Choosing your loan value and term
When trying to understand how small loans work, it is important to know that if you are looking for a small loan, you will need to make a decision about how much you want to borrow. You should also consider the period of time you would like to pay your loan back over.
Short term lenders often offer borrowers a range of different loan terms, usually from around 1 to 6 months. This means that you should be able to apply for repayment terms to suit your finances.
A longer loan term generally means that repayments might be more spread out. A shorter loan term means that you should pay your loan back, together with interest, much quicker.
However, many loan providers offer borrowers the opportunity to pay back some, or all of their loan, before it is due to be repaid, at no extra cost.
Opting to repay your loan early could save you money, as interest is usually charged daily.
How small loan repayments work
Most lenders automatically set up your repayments when you are approved for a loan and accept the loan offer.
Repayments are usually taken by Continuous Payment Authority. CPA is a process by which you give a loan provider permission to take money from your debit card on a regular basis.
The majority of short-term lenders could take your repayments on or just after your payday.
How small loans work: Charges for small loans
However, due to the Financial Conduct Authority’s price caps, interest and fees charged must not exceed 0.8% per day of the amount borrowed. In addition, FCA rules state that borrowers must never pay more in fees and interest than 100% of what they borrowed.
Some lenders charge additional fees, such as late repayment fees. You can check your credit provider’s website to see which fees they charge on top of interest for your loan.
Applying for a small loan
You can apply for a small loan directly with a loan provider, generally by completing an online application form. Some lenders allow you to apply by telephone or via their high street stores.
Alternatively, you can apply for a small loan with a credit broker, such as CashLady. By applying through CashLady, your application will be seen by our trusted panel of short-term loan providers. We show loan applications to our panel of lenders and match you with the credit provider most likely to offer you a loan.
The advantage of submitting your credit application through a broker is that you will only have to complete one application form for your loan application to be seen by a variety of different lenders.
This could increase your chances of being approved for a loan.
Ensure that you opt for a broker who does not charge you a fee for their service. Brokers of this type usually receive a fee from their lenders.
Additionally, if you choose to apply through a credit broker, make sure that they do not work with any loan providers who charge application fees.
What happens after you have submitted your loan application?
Short term lenders will require your personal details such as your name, address, employers address and earnings.
It can be helpful to have these things to hand before completing your application.
If you are applying directly with a responsible lender, they should carry out credit and affordability checks on you after receiving your loan application.
The process is very similar if you are applying through a broker, but instead of your application just being seen by one credit provider, CashLady UK will show your information to our panel of lenders.
It is worth noting that some lenders may offer you a different loan amount than the exact amount that you applied for. This offer could be less or more than you originally wanted.
You may be asked to send further documents to support your application before your loan can be approved.
If your loan application is accepted, you should then be sent a loan agreement. You should read this and ensure that you fully understand it, before proceeding.
The length of time it can take to get the cash into your account can vary. Some loan providers promise that you could get the money in your account on the same day as your application.
How small loans work: Summary
The terms of your small loan could vary depending which credit provider you take out your loan with.
Interest and fees charged also differ from lender to lender.
It is important to always ensure that you read and fully understand your loan agreement terms, before accepting them.
Small loans are only for emergency expenses and should not be relied upon for a regular source of income.
If you think that it is not a right solution for you, read our tips on how to avoid small loans.