What is a small personal loan?

Designed to offer individuals affordable loans with reasonable repayment terms, small personal loans are a fixed-amount, lump-sum loan that is paid back over time with interest. Small personal loans usually have a principal balance of less than $5,000, shorter repayment periods and fixed interest rates.

Most larger financial institutions have moved away from the small end of the loan market. However, there are still great options if you need a small loan. You can try a credit union if you need $500 or less, but online lenders are ideal if you’re looking for a bit more cash.

What is a small personal loan?

Small personal loans are low-cost, short-term installment loans geared toward borrowers with little to no credit history. Offered by national banks, community banks, credit unions and online lenders, these loans come in amounts up to $5,000. They’re regulated at a federal and state level to ensure that the costs remain low.

Designed to be an affordable alternative to payday loans, small personal loans can be used for a wide range of expenses. People may use small loans for expenses like:

• Car repairs
• Debt consolidation
• Medical procedures
• Unexpected bills
• Vacations
• Weddings

Pros and cons of small personal loans

Consumers cite accessibility, fast funding, low costs and the ability to build credit as positive benefits of small dollar loans. While small loans are typically easier to qualify for than larger amounts, not every lender offers them.

Pros

• Widely available
• Easier qualifying standards
• Fast funding
• Comparatively low cost
• Credit-building potential

Cons

• Must have an active checking account
• Not available at all lenders
• Short payment terms
• Potential for scammers

How to get a small personal loan

If the pros outweigh the cons and you’re ready to apply for funding, there are a few steps you’ll need to take. As with any financing you’re considering, you’ll want to start by considering your choices.

1. Research your options

Small loans have become more widely available due to their increase in popularity. When looking for this type of loan, consider checking with several institutions.

• Select national banks: As of 2025, Bank of America, Huntington Bank, Truist, U.S. Bank and Wells Fargo all offer small dollar loans to their customers.
• Community banks or local credit unions: If you’re already a customer or prefer a local lending experience, compare small dollar loan offers from community banks and local credit unions. Some credit unions also offer payday alternative loans, a small-dollar loan with few credit restrictions.
• Online lenders: These days, many online lenders offer loans in smaller amounts to meet the growing demand. Popular companies like Upgrade, LendingClub, Upstart and LendingPoint provide loans as small as $1,000.
• Community Development Financial Institutions (CDFIs): Some CDFIs participate in the Small Dollar Program, which is designed to provide an alternative to expensive options, like payday loans.

Some institutions require borrowers to have an existing account to be eligible for small dollar loans. If you opt for a credit union loan, you’ll need to become a member before you can borrow. The requirements are generally easy to meet and based on factors like location, occupation and association. Some credit unions may also accept donations to a specific nonprofit organization for membership.

That said, it’s always a good idea to start your search with an institution you already have an account with, as the process is likely to be quicker.

2. Review common eligibility requirements

Lenders will review your credit score and history to determine your creditworthiness, but some lenders consider alternative factors, like your recent banking activity. The higher your credit score, the more likely you are to receive a competitive rate. If your credit history has some blemishes, you may qualify for a bad credit loan, though the rate may be as high as 36 percent.

Each lender sets its own eligibility requirements, particularly around credit and income metrics. The surest way to qualify is to have a good credit score (670 or higher) and steady income. Generally, you must tick the following boxes to qualify:

• Be at least 18 years old.
• Have a government-issued identification.
• Have an active checking account in your legal name.
• Provide at least two recent pay stubs.
• Pass an employment verification check.

3. Get prequalified with multiple lenders

The best way to compare rates and terms is to prequalify for a personal loan with multiple lenders. If you accept the first offer you receive, you could be leaving money on the table — by reviewing multiple options, you can zero in on the loan with the lowest rate and most affordable terms.

Plus, prequalifying won’t impact your credit. While prequalification doesn’t guarantee final approval, it can give you a good idea of your eligibility and a peek at your potential rates.

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4. Apply and receive your funds

Most applications can be completed online or through the bank’s mobile banking app. If you prefer in-person assistance, call your local branch and ask if there’s customer support available.

To simplify the application process, have all the necessary information and documentation on hand. When you formally apply, the lender will perform a hard credit inquiry to verify your credit history — this can drop your credit score by about five points.

Many lenders issue loan decisions within one business day, and some provide same-day funding. Be sure you read your loan contract carefully and understand when your first payment is due.

Where to get a small personal loan

When searching for small loans, you can look at several types of lenders. You will find that digital lenders typically offer quicker and more convenient options, while banks and credit unions usually offer more traditional financial services.

Banks

Small-dollar loans from large banks are based on your income and credit score. While each institution sets its own eligibility requirements, standards tend to be higher with banks, so borrowers with bad credit may not qualify. If you already have a relationship with a bank, you might also be eligible for better interest rates.

Credit unions

Credit union loans often come with lower interest rates and better terms than major banks. Eligibility requirements may also be less stringent. To obtain a credit union loan, however, you must become a member. Membership may be as simple as opening a savings account, or you may need to live in a certain area or work for a participating employer.

Some federal credit unions offer payday alternative loans (PALs) in amounts between $200 and $2,000, with repayment terms as long as one year and APRs as high as 28 percent. Since these loans are designed to serve as an alternative to predatory payday lending options, the underwriting guidelines are more flexible and less focused on credit score, making PALs a good option for bad-credit borrowers.

Online lenders

Online lenders are known for their speedy loan decisions and fast funding. APRs may be as high as 36 percent, but you can typically find loan amoounts between $1,000 and $100,000.

In addition to visiting online lender’s websites, you can also utilize online lending marketplaces like Bankrate. By filling out a single form, you may be prequalified with multiple lenders in the partnership network. While marketplaces can be a great way to save time on comparison shopping, keep in mind that not every lender is available on a single platform.

Alternatives to small personal loans

If you’d prefer not to use a personal loan to cover unexpected expenses, consider potential personal loan alternatives.

• Credit cards: A credit card is a convenient option but usually has a higher interest rate than a personal loan. For this reason, it should only be used if you can pay the balance in full before interest accrues.
• Borrow from a relative or friend: You could also talk to family and friends and request a small private loan. Be sure to solidify the terms and get the agreement in writing to avoid confusion later on down the line.
• 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 of the funding you need at terms comparable to bad credit personal loans.
• Saving to reach your goal: If your financial needs aren’t urgent, saving is the best option because you’ll avoid paying interest. Deposit savings into a high-yield savings account until you reach your goal.

Watch out for small predatory loans

Unfortunately, some lenders prey on financially distressed borrowers in need of fast cash, including those with poor credit. These predatory lenders aren’t transparent about the terms of their offerings, and often extend funding in exchange for steep interest rates, excessive fees and unfavorable terms that trap desperate borrowers into a vicious debt cycle that’s beyond challenging to escape.

You can avoid small predatory loans by reading the fine print of the loan agreement before signing on the dotted line. That way, you’ll know exactly what you’re signing up for and what to expect once the loan proceeds are disbursed to you.

If you notice that a lender is far too lenient with their guidelines or guarantees approval, you may have uncovered a loan scam. Other red flags include high-pressure tactics from loan officers to accept funding, excessive penalties, exorbitant interest rates and brief repayment periods that make the loan payments unaffordable.

Bottom line

Small personal loans offer a viable solution for borrowers who need quick and affordable access to cash — but it’s important to carefully research and compare your options before committing to a loan. Whether you choose a bank, credit union, or online lender, make sure to read the terms and conditions carefully.

By taking the time to find the best small loan for your specific needs, you can confidently borrow the amount you need without falling into a cycle of debt. Remember, it’s always better to be cautious and informed when it comes to borrowing money.