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Small dollar loans can tide you over when you’re short on cash and need to cover a sudden expense. These loans are highly flexible, and are a better alternative to payday loans and even better than some bad credit loans, as they feature much lower interest rates and more favorable terms.
How to choose the best small dollar loan
Follow these three steps to select the best small dollar loan for you.
1. Check your credit
Because small dollars are unsecured, meaning that they don’t require collateral, your loan will be approved based on your creditworthiness. Each lender has its own credit score criteria for approval. Checking your credit score beforehand will allow you to narrow down your search to institutions that serve customers within your credit band.
Some banks and credit unions, as well as credit card companies, offer free credit monitoring services for their customers, which you can take advantage of to view your score. You can also request a free copy of your credit report from all three major credit bureaus (Experian, TransUnion and Equifax) by visiting AnnualCreditReport.com. It should be noted that these reports won’t show you your credit score but can give you an idea of where you stand and challenge any errors.
2. Run the numbers
Unlike lines of credit, which give you the flexibility to borrow as you go, small dollar loans are issued for a fixed amount. To avoid coming up short, make sure to calculate how much you need before applying.
Loan amounts also vary by lender. For instance, U.S. Bank offers small dollar loans of $100 to $1,000, while Bank of America caps its loans at $500. Knowing this information will allow you to target your search toward institutions that offer your desired amount.
3. Weigh your options
Once you know your credit score and the loan amount, the next step is to compare lending options, paying attention to the following:
- Eligibility requirements: Each lender has its own criteria for loan approval. Make sure you meet these before applying to avoid getting denied.
- Repayment terms: While a shorter repayment term can save you money on interest, it will result in a higher payment than choosing a longer repayment term. Checking the repayment terms offered by each lender will allow you to select a loan that won’t tilt your budget.
- Interest rates and fees: Some lenders charge a fixed interest rate on their loans, while others charge a flat fee.
- Funding timeline: Lenders typically offer same-day funding for small dollar loans, but some institutions may have longer timelines.
Comparing lenders using the above factors will allow you to select the one that best suits your situation.
The bottom line
Small dollar loans can be a lifesaver if you’re in a financial bind. Knowing your credit score, as well as the loan amount, will allow you to narrow down your lending options. However, the best small dollar loan for you will be the one that can offer you the funds you need, within your desired timeline, and with a monthly payment you can afford.