Discover how small loans could be the financial solution you need
Small loans provide quick cash for emergencies. They help, even with bad credit, and are easier to get than a traditional loan.
They have shorter approval processes and fewer requirements than larger loans.
Small loans can help cover short-term needs without taking on long-term debt. They also offer flexible repayment terms. Borrowers can strengthen credit scores through timely repayment of debts. Small loans are a quick fix for small, urgent expenses, and may also help manage debt. (When handled with care).
Eligibility for a small loan
All lenders have differing criteria for customers they’ll accept. Some common requirements include:
- Must be 18 years or older.
- Be a UK resident with valid proof of address.
- Have a regular source of income.
- An active UK bank account.
- Proof of identity (passport, driving licence).
- Debt-to-income (DTI) ratio within acceptable limits. (Usually under 36% DTI)
- No recent history of bankruptcy or CCJs. (Recent meaning within the past 3 to 6 months)
- Consent to a credit check, even if it is a soft check only for ID verification.
Preparation is key to a successful loan application: Avoid these common pitfalls
Before hitting proceed on a loan application, know ahead what can go wrong. Applying to a lender that doesn’t serve poor credit customers can cause rejection. Bad credit loans are for those with a poor credit history.
Similarly, having insufficient income or employment instability can be troublesome. Lenders need to see that you can afford the repayments for the duration of the loan.
Other things to consider include:
- Paying a chunk of your salary to debts. Lenders may feel you’re over-leveraged if over 36% of your income goes toward paying down debts. Responsible lenders follow a standard of lending practice. The aim is to prevent customers from falling into problem debt.
- No UK residency or proof of address.
- Too many recent credit applications.
- Unverified or mismatched identity details.
The ease of getting approved for small loans
Small loans can be easier to get because they are lower risk for lenders. They have flexible eligibility and quick approvals. Credit checks may be less strict. However, approval depends on credit history, income, and existing debt levels.
About small loans with no credit check
Many lenders check credit before approving a loan. This assesses the applicant’s financial reliability. Some lenders, like payday or guarantor loan providers, may approve loans without a credit check. Instead, they focus on factors like income, employment, or having a guarantor. Such loans often have higher interest rates to offset the increased risk to the lender.
What to consider before applying for a small loan
- Can you afford the monthly repayments?
Lenders may ask for bank statements to verify your monthly expenses.
- Compare interest rates and fees across lenders
The APR is the annual interest rate. Small loans are repaid over a shorter term, so lenders charge more to make their profits sooner. Unlike large loans, repaid over years, small loans are usually repaid in under one year.
- Check your credit score for potential issues
Negative entries like late payments and defaults can push your interest rate higher.
- Understand the total loan cost, including interest
Even if you’re planning to repay in a few months, check for fees. Some loan companies have early repayment charges. If you use a credit broker, you may have additional fees to pay. These can include administration, loan processing, or origination fees.
- Ensure the loan purpose aligns with lender requirements
If you plan to use small loans to pay off debts, check that the lender allows debt consolidation. (Most do)
- Consider the impact on your credit score
Too many loan refusals in a short space of time makes it harder to be approved. Space out your applications.
- Evaluate alternative funding options
Government grants or budget loans may be available.
How to Apply for Small Loans
- Compare lenders and loan options
Options for small loans are personal loans, guarantor loans, and quick loans.
- Check the eligibility criteria and prepare the necessary documents
Eligibility requirements differ by lender. One lender may accept customers earning £750 a month from work. Another may accept those with only welfare benefits as income.
Whatever situation you’re in, you’ll need evidence. Payslips, or a tax return if you’re self-employed. If you’re on benefits, a recent copy of a letter from the Department of Work and Pensions may be required.
- Submit the loan application online
You’ll need digital copies of documents for online loan applications. Most smartphones have capable cameras for scanning documents.
- Await approval
After you submit your application, wait for a decision. Most happen over two stages. First, your loan is considered, and if successful, you’ll receive a loan offer. Check that document for key terms. Look for the interest rate, the monthly repayment, and any fees.
- Accept the loan and receive funds
If you’re happy with the loan offer presented, agree to the terms and await funding.
FAQs about small loans
- How soon can I get my loan?
Same day loans that are approved before a specified time (such as 3:30 pm) could be in your bank the same day. Quick loans are typically 24 to 48 hours. Small loans that aren’t urgent loans generally take 2 to 5 working days to reach your bank.
- How much can I borrow with a small personal loan?
Many lenders consider small loans to be sums up to £1,000. Others consider £5,000 loans to be small amounts. Typically, loans with 12-month repayment periods can be considered small loans.
- How much will a small loan cost?
The representative APRs tend to start at 8.9%. However, those represent fair to good credit scores. The lower your credit score, the higher the APR can be. The max charged on small loans with high APRs is 0.8% per day. Those apply to payday loans and should be repaid as soon as possible.
- How will interest be charged?
Small loans accrue interest daily. The rate is presented as an annual rate of interest. To calculate the cost, divide the rate by 365 (days in a year), then multiply by 30 (days in a month).
Lenders provide you with the total interest repayable in your loan offer. The above calculation is what to use if you plan to repay it early.
- Can I pay off my loan early?
Yes. Check with the loan terms document to see if an early repayment charge is required. Some lenders stipulate that you need to ask for a settlement figure. Others let you pay more than the monthly repayment to help you repay the loan sooner.
- How will a small loan affect my credit score?
Taking out a small loan may have an impact on your credit score. Managed well, with timely repayments, it can improve your credit score. However, if you miss payments it can have a negative effect, lowering your credit score.
