Small Personal Loans: The Pros & Cons
A small personal loan can be a popular financial product for many of us.
From purchasing a first car, carrying out a few home improvements to consolidating credit card debt, they’re a useful tool to help us manage our finances and pay for items we might otherwise have to save for or go without.
Small personal loans are essentially a lender giving you funds that you agree to repay over a short period of time. Generally speaking, they are available from just a few hundred pounds up to a few thousand and can be repaid over a period of a few months to longer if necessary.
As the amounts are generally small, you do not have to be a homeowner because these loans are unsecured – meaning you do not have to have a property to secure against the outstanding debt. Of course, if you are a homeowner, you could be eligible for a secured loan too.
As with all financial products, personal loans for small amounts do have their pros and cons:
- They are a great way of consolidating a few small debts such as credit or store cards as they offer far more favourable interest rates and you only have the one monthly payment to make.
- Servicing the debt on a small personal loan can help improve your credit rating as it proves to lenders that you are a responsible customer by making the repayments on time.
- You can cover any unexpected costs that might crop up with a small personal loan if you are able to wait a few days for your application to be processed.
- They are often very easy to apply for so there’s no need to fill in reams of forms to make an application
- As you’re only borrowing a small amount, the interest rates might be higher than on larger amounts.
- Some loans can come with early repayment fees or penalties, so you’ll need to ensure that this isn’t the case if you want to clear the balance early.
- As personal loans are considered high risk as they generally aren’t secured against property, you might be required to have a good credit rating in order to be accepted for the best rates.
- Lenders that do offer these loans to individuals with a poor credit score may impose far stricter repayment terms.
Read our short guide to the different types of small loans.
There are several lenders that offer small personal loans, but it’s really up to your individual circumstances as to which one best suits your needs.
Applicants require a good credit history as well as a minimum of five years’ address history and details of employment and annual income.
If you want to compare the offerings from several lenders for your small personal loan, our personal loan moneymatcher tool will show you the lenders and deals that will best suit your circumstances.
Updated on 1st July 2019
Published on 2nd October 2018