If you’re facing an unexpected expense — like a medical bill or car repair — and can’t cover the cost, you’re not alone. According to the Federal Reserve Board’s Report on the Economic Well-Being of U.S. Households, 39% of adults said they couldn’t pay for a $400 emergency with cash or savings.
When you need money fast, small personal loans can sometimes be a more cost-effective option than turning to a credit card or payday loan. Here’s what you need to know about personal loans and where you can get one.
What to look for in small personal loans
If you need cash right away, you’re likely exploring several different options. You may think that payday loans or title loans are a good fit for your needs, but you should think twice before going this route.
According to the Consumer Financial Protection Bureau, payday loans have exorbitant interest rates. Their fees can equate to a high APRs (annual percentage rates) of 400% in some cases, causing you to owe far more than you originally borrowed. Similarly, title loans — which use your car’s title as collateral — have incredibly high fees and interest rates. The typical loan amount is $700, but the average APR is about 300%.
Instead of taking out a high-cost payday or title loan, consider a small personal loan from a reputable lender. When evaluating lenders, consider the following factors:
- Unsecured: Look for personal loans that are unsecured, meaning loans that don’t require you to put up any form of property as collateral.
- Fees: While some lenders charge origination or application fees, not all do. When comparing loan offers, make sure you consider any fees the lender charges so you get a complete picture of how much the loan will cost you.
- Interest rates: If you have good-to-excellent credit, you can likely qualify for a low-interest loan. Even if your credit isn’t stellar, you may still be approved for a loan with an APR of 35% or less — far lower than what you’d get with a payday loan.
- Various repayment terms: With a payday loan or title loan, you typically only have a few weeks to repay the loan. But with traditional personal loans, you often have several months or even years to pay it back, making the monthly payments more affordable. You can choose a loan term that works best for your budget and needs.
4 ways to get small personal loans of $3,000 or less
If you need a small personal loan and want to avoid payday or title loans, consider these four alternatives:
1. Research online lenders
If you need money fast, you might take out a small personal loan from an online lender. You could apply for a loan online in just a few minutes, get a decision right away, and have your loan disbursed to your bank account within a couple of business days.
Online lenders often offer loans from $1,000 to $100,000, and some allow repayment terms as long as 84 months. If you have excellent credit, going with an online lender can be a smart choice; you might qualify for a loan with an interest rate as low as 5% or 6%.
For example, Rocket Loans provides loans from $2,000 to $45,000, with repayment terms from 36 to 60 months. Interest rates range from 7.161% to 29.99%, as of September 2019. If approved, you could receive your money in just one business day.
The downside to online lenders? You can’t get in-person help if you need it, since most of them don’t have physical branches to visit. Customer service can also vary from institution to institution, so there’s no guarantee that you’ll be able to easily get personalized help when you have questions.
2. Consider loans from major banks
While you may associate major banks with large loans, several banks offer small personal loans, too. With a national bank, you get the peace of mind that comes with working with an established financial institution, as well as access to a robust customer service team. If you’re shopping for a loan, consider these lenders:
- Citibank: With Citibank, you can borrow between $2,000 and $50,000; if you’re borrowing $30,000 or less, you can apply online. Interest rates range from 7.99% to 17.99% (as of September 2019), and loan terms can be up to 60 months long.
- Discover: Discover allows you to borrow $2,500 to $35,000. There are no processing fees or origination fees, and it offers loan terms as long as 84 months. As of September 2019, interest rates range from 6.99% to 24.99%.
- Wells Fargo: Wells Fargo offers loans from $3,000 to $100,000. There are no origination fees or prepayment penalties, and loan terms range from 12 months to 84 months. As of September 2019, interest rates start at 5.24% and go up to 22.99%.
3. Talk to your local credit union
Federal credit unions — nonprofit organizations that serve local communities — often offer small personal loans known as payday alternative loans (PALs). PALs are a better choice than payday loans, allowing you to get the money you need at a much lower interest rate with better repayment terms.
Credit unions tend to have more relaxed requirements than other lenders, so you could be more likely to qualify for a loan even if you have less-than-stellar credit. Federal credit unions may charge you an application fee, but this fee can’t exceed $20. You can borrow $200 to $1,000, and loan repayment terms are typically six months or less.
To apply for a PAL, contact your local federal credit union.
4. Try peer-to-peer lending
Another option to consider is applying for a loan from a peer-to-peer lender. These lenders provide loans funded by individual investors rather than banks or credit unions. Investors pool their money together to offer borrowers personal loans based on their risk profile.
With a peer-to-peer lender like LendingClub, you can borrow $1,000 to $40,000 and have a loan term as long as five years. Interest rates depend on your credit score, income, loan amount, and selected term, but they range from 6.95% to 35.89% (as of September 2019).
LendingClub loans do have an origination fee; this is a one-time fee that falls between 1% and 6% of the loan amount. The fee is included in your APR and is only charged if you receive a loan.
You can apply for a LendingClub loan online.
Applying for a loan
When you need money to cover the cost of an unexpected expense, small personal loans can be a lifesaver. You can get cash quickly and qualify for both a lower interest rate and more favorable repayment terms than you’d get with other forms of credit.
If you decide that a personal loan is right for you, check out the best personal loan lenders of 2020.
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