Getting a small personal loan may be a good borrowing option if you’re someone who only needs a small amount for your financial goals.
Here are six different types of small personal loans that you can use to cover a variety of expenses when you’re short on cash.
- Unsecured personal loans
- Secured personal loans
- Debt consolidation loans
- Buy-now, pay-later loans
- Joint personal loans
- Personal lines of credit
Good for: People with higher credit scores
With an unsecured personal loan, you borrow a lump sum of money up front and repay it in fixed installments over an agreed-upon period of time. The main benefit of taking out an unsecured personal loan is that you don’t need to secure the loan with collateral. This means the lender can’t seize any of your assets if you default on the loan.
The downside is that the interest rate you receive is heavily tied to your credit score. So if you have bad credit, you’ll likely pay a higher interest rate.
Visit Credible to see your prequalified personal loan rates from various lenders, all in one place.
Good for: People who are working on their credit
If you can’t qualify for an unsecured personal loan, a secured personal loan is a solid borrowing option. Like unsecured loans, you’ll receive an upfront sum that you repay in fixed installments. Unlike unsecured loans, secured loans do require you to provide collateral, such as a car, money in a savings account, or a certificate of deposit. If you default on the loan, you risk losing that collateral.
But if you have bad credit, putting up collateral can make it easier to obtain a personal loan. As a bonus, making on-time payments on a secured personal loan can be a great way to improve your credit score.
Good for: People who have multiple high-interest debts
A debt consolidation loan is a type of unsecured personal loan designed to help you streamline multiple sources of debt into one loan. This can make the debt repayment process simpler as you’ll only have one lender to make payments to, one due date each month, and one interest rate. If you’ve improved your credit score since applying for the original debt, you may be able to qualify for a lower interest rate on a new loan. If this happens, you can save money on your debt payments and can have lower monthly payments — all of which can make it easier to make extra payments and pay down your debt faster.
The downside with debt consolidation loans is there’s no guarantee you’ll get a lower interest rate, so it’s important to shop around for the best deal.
Good for: People who want a low-cost way to spread out an expensive purchase
Buy-now, pay-later loans are a type of installment loan that you can use to make purchases at participating retailers. You can make a purchase with either no initial payment or a small initial payment, and then you’ll pay off the remaining balance over a few payments (usually four or less).
The benefit of these loans is that the approval process is quick and easy. But the downside is if you miss a payment you’ll likely be charged a late fee.
Good for: People who are working toward a financial goal together
When you apply for a joint personal loan, you’re applying for a traditional personal loan, either secured or unsecured. The difference is that you’re applying with a co-borrower (also referred to as a co-applicant). With joint personal loans, both applicants share equal responsibility for paying off the loan.
It can be easier to qualify for a joint personal loan as you bring two incomes to the table instead of one, which can get you a lower interest rate and potentially larger loan amount. The major downside of a joint personal loan is trusting that the co-borrower will make payments as agreed. It’s important you both have a plan in place for paying off the loan on time so you don’t run into fees and damaged credit scores.
If you’re ready to apply for a personal loan, visit Credible to quickly and easily compare personal loan rates from various lenders.
Good for: People who want flexibility in how much they borrow
You can apply for a personal line of credit with a bank or credit union. A line of credit works similarly to a personal loan in that you can use it to cover a variety of purchases. But it’s also similar to a credit card: You can borrow up to your approved amount on an as-needed basis, but you don’t have to borrow your total credit limit all at once. This means you’ll only have to pay interest on the amount you borrow.
Lines of credit are sometimes secured, which means you risk losing collateral if you don’t make your payments on time. Another downside is that lines of credit can come with annual fees, so make sure to read the fine print before signing for one.