Key takeaways

  • Decide how much money you need before applying and ensure you're comfortable with the payment.
  • You may qualify based on your banking activity rather than your credit score.
  • Small-dollar loans are a flexible and more affordable alternative to expensive payday loans.

If you need quick cash to cover an unexpected expense under $2,500, knowing how to get a small dollar loan may give you the financial relief you need. You’ll have more time to pay the loan off than a payday loan and may find it easier to qualify for a small dollar loan compared to other bad credit loans.

You’ll usually only need three steps to receive small dollar loan funds. Follow them completely and consider the benefits and drawbacks before applying to get the best deal for your finances.

How to choose the best small dollar loan

1. Start with your local bank

Most major banks, many small banks and credit unions offer small credit loans based on your banking activity instead of your credit history. You should contact your bank to see if they offer small credit loans and ask about approval requirements.

If your account shows regular paycheck deposits and you use it to pay regular bills, the lender may approve your loan based on a review of a few months’ worth of transactions.

Small-dollar loans and credit scores
Review your credit history before applying for any type of loan, regardless of approval requirements. Check with your bank or credit union to see if you have free credit monitoring as part of your account.


2. Decide how much you need and run the numbers

According to a Pew study of small loan lending, most major banks offer maximum loan amount options of $500, $750 and $1,000, with minimum loan sizes of $10 to $250. Credit unions and community banks may offer loan amounts as high as $1,500 or $2,000.

Loan terms are usually three to four months, but the small dollar loan program allows lenders to extend the payment out as long as 36 months. Also, make sure you add an extra fee buffer — they’ll be subtracted from your loan amount before you receive your funds.

3. Shop around and weigh your options

Once you have checked with your local bank and the loan amount, the next step is to compare your options.

  • Get quotes from several different lenders. Review estimates for APR and costs with at least three different lenders. One note: If the rate exceeds 36 percent, then you’re not working with a legit small loan lender. Federal regulations cap small loan rates — if the rate is higher, you may be working with a predatory lender.
  • Choose repayment terms. Many large banks offer terms of three to four months. Others may offer terms as high as 36 months. The shorter the term, the higher the payment but the less interest you pay overall. But there is no minimum monthly payment option like you have with a credit card, so make sure the monthly payment doesn’t strain your budget.
  • Review fees. Most lenders charge a flat fee, although some may set an APR that’s part of your monthly payment.
  • Funding timeline. Lenders typically offer same-day funding for small-dollar loans, while others may take several business days to fund. Ask your lender about its turnaround time, especially if you need the funds urgently.

Alternatives to small-dollar loans

Several other options may meet your needs if you don’t qualify for small-dollar loans or your local bank doesn’t offer them.

  • Borrow from a friend or family member. You may find a relative or friend willing to help you out in a bind. Ensure you set expectations for repayment in advance to avoid damage to the relationship later if you can’t repay the balance.
  • Personal loans. If you receive a regular paycheck and have at least a 550 credit score, you can borrow less than $2,500 with a personal loan at terms as short as six months. Most lenders offer maximum APRs at 36 percent, but there are personal loan companies with triple-digit rate programs, so review the fine print before you sign off.
  • Peer-to-peer loans. Instead of applying to just one bank, peer-to-peer loans give you a chance to be considered by several investors. You may be approved for some or all the amount you need at terms comparable to bad credit personal loans.

The bottom line

When faced with an unexpected expense under $2,500, knowing how to obtain a small dollar loan can provide much-needed financial relief. With a focus on banking activity rather than credit score, these loans offer flexibility and affordability compared to payday loans. And if small dollar loans are not available, there are other alternatives that may meet your needs. Consider your financial situation and needs carefully before applying for any loan.