What are small loans? A small loan is a type of personal loan that is not secured against any collateral, such as your home or your car.
Small loans can be useful for those who are struggling to find the required money to pay an emergency expense.
Small loans explained
In essence, small loans are a type of financial product that you can apply for if you need money for emergency expenses.
It’s important to note that small loans are not meant to be used regularly. Neither should they be used to treat yourself to things such as clothes or a holiday.
Typically, people use small loans to fund unexpected expenses such as vehicle repairs or settling urgent bills.
Used in the right way, small loans can provide people with a much-needed lifeline.
As these loans are relatively small and have shorter loan terms, they can be an ideal option for solving cash flow problems.
If you find yourself having to regularly take out small loans to pay off other financial obligations, you should get in touch with a debt charity, such as , as soon as possible. They can advise you how to get out of this ‘cycle of debt’.
Small loans are usually between £80 and £500. They can generally be taken out for between 1 to 6 months. When applying, many lenders give you the flexibility to choose a loan term that would best suit you.
When deciding how much to borrow and over what timescale you will pay your loan back, it is important to be aware of how much you can afford to repay every month. You should not borrow more than you can afford to comfortably pay back.
What are small loans: Types of small cash loans
are probably one of the most well-known types of small loan.
Traditionally, payday loans can be borrowed for up to a month. You would then pay the entire loan amount back (plus interest), in one single instalment. This would typically be on your next payday.
Loans that are paid back in two or more instalments are known as instalment loans.
The amount of interest you could pay on a payday loan may vary from lender to lender. However, as per the Financial Conduct Authority price cap on high-cost short-term credit (HCSTC), interest and fees must not exceed 0.8% per day of the amount borrowed. Additionally, borrowers must never pay more in fees and interest than 100% of the amount they borrowed.
Small Personal Loans
Personal loans are typically borrowed over longer periods of time (anything from 3 to 24 months). This means you could have more time to repay your loan and the interest due.
Interest on personal loans is generally less than interest on payday loans. However, because personal loans tend to be taken out over a longer period of time, the overall cost of borrowing can sometimes be more, depending on things such as interest rates and loan term.
Conversely, there could be less risk of missed payments and incurring charges with personal loans, because monthly loan repayments are usually lower than those of payday loans.
It’s worth bearing in mind that some personal loans are not subject to the same rules and price caps as payday loans.
Line of credit loans
In essence, if you are approved for a line of credit loan, you may be offered credit up to a certain limit. Within this limit, you can borrow what you need and repay it (plus interest), when you no longer need the money anymore.
This is also referred to as ‘revolving’ credit.
This type of small loan is useful for anyone who needs cash, fast. Some people use it as an alternative to an unauthorised overdraft.
This type of credit is quite similar to using a credit card, as you may be provided with a credit limit that you could use to pay for your emergency expenses. Just like a credit card, you could be able to borrow within this credit limit and then as long as you pay it back (plus interest), borrow the money again.
However, it is different to a credit card with regards to interest payments. On a credit card, as long as you pay it off in full every month, you may not pay any interest. Most line of credit loans could charge you interest from the moment you borrow the money.
What are small loans: How to apply for small loans
To apply for a small loan, you could find a reputable loan provider online and apply directly with them. Alternatively, you can use a how small loans work. , like . Read
Applying through means that your loan application is seen by our trusted panel of lenders, instead of just the one lender you would get by directly submitting your application. We then match customers with the lender most likely to offer them a loan.
You can apply for a small loan online by filling in our . You should receive a quick decision from a lender. If you are approved, you could have the money in your bank account on the same day.
Submitting an application online can be done from the comfort of your own home.
Am I eligible for a small loan?
Every small loan provider will have different eligibility requirements.
However, there are a number of important factors that will apply, no matter which credit provider you decide upon.
All small loan applicants will need to be UK residents and over the age of 18. You will also need to be employed, either full-time or part-time. You will usually need to earn at least £500 per month.
Before completing an online application form, it can be useful to have your monthly expenditure (such as food or rental costs) and information regarding your employer, to hand.
You will also need an email address and mobile phone number so that your loan provider is able to contact you. Lenders also tend to use your email address to send you your loan contract.
It’s also essential that you have a UK bank account so that you can receive the funds and make repayments.
What are small loans: Summary
When asking the question, ‘What are small loans?’ the important thing to consider is that small loans should only ever be used for emergency expenses.
They are not a long-term solution.
Everybody has cash emergencies from time to time. Not everyone has savings available to pay for these unforeseen expenses.
Applying online for a small loan to cover these costs could be an option.