Here’s how they can turn your life around
Small loans don’t look like much, but they can be life savers. If your roof leaks or your car suddenly breaks down, those small loans can be the difference between a flooded house with no way to move the family to a motel and keeping your family safe and dry
But what qualifies as a small loan? How quickly do you have to pay it back? What about your credit score? Can a borrower qualify for small loans with bad credit?
The answer to all of these questions is; yes, possibly. But, it’s essential to understand what your lender considers a small loan, how to apply for one, and see yourself through a lender’s eyes. Otherwise, your application might get rejected the moment you apply, and that will make a low credit score even more abysmal.
Here’s a quick rundown of how to borrow smaller amounts of money and why small loans can be a great way to boost your credit and your relationship with a lender.
What qualifies as a small loan?
Small loans are sums of money that run as low as $300 and as high as $5000, though some lenders will go up to $6,000. The idea is that you as the borrower will pay that money back within a short period of time. Most small loans get repaid between a month or six months.
Once you’re approved you can get access to your money within minutes. If you can pay it back fast, your credit score will inevitably get bumped up. That makes you more likely to see application approvals for future loans and possibly a chance to join a customer loyalty program if your broker offers one.
You don’t want to apply for and manage several loans at once. When you take on multiple small loans, lenders see that as a bad sign and will start to reject your applications. While it is legal in Australia to take out those loans all at once, try to spread them out so you can show your lenders that you’re a responsible borrower. That will help everyone, including you, breathe easier.
How to get small loans
Start with a brokerage firm that you like. Check fees, interest rates, and available customer services. You want a firm that you can call up with any questions or concerns and one that’s upfront about any commissions or administrative fees.
Once you have a spot you like, get together your official documents. Each firm is a little different, but you need proof of your ID, your payment history from your job, Your ABN card, (if you have one), and any other documents the firm requires.
Most firms allow you to apply online or by phone, but go in for a visit to your lending institution if it’s possible. Small loans are still loans and you want to know who’s giving you money and how it feels to sit across from that person. Make sure the office looks professional and that they have good feedback from past clients before you decide to sign a contract.
Once your application is approved, you can expect your loan within a few minutes. Then you need to budget in payments to get that money paid back within a reasonable time. If you have to default on a payment or get a new schedule, talk to your broker about your options. Don’t miss a payment on any small loans without attempting to get a deferral or an extension.
Are small loans possible with bad credit?
Yes, small loans are available to people who may have slipped below the gold standard of a 700 credit score. However, you need to provide proof of income over the past six months and, if your credit score is exceptionally low, you should be ready to pay a much higher interest rate.
Many individuals fall into the bad credit category. If you default on a parking ticket it can hurt your rating. Or you simply may be someone new to credit and therefore have no history. Either way, you’re considered more of a risk and need to build up a better score to apply for bigger loans in the future.
If your credit score falls particularly low, some lenders might ask for an interest rate up to 30 percent, (as compared to the standard 15 percent). Make sure whatever you borrow can be paid back fast and without leaving you in the red.
Most lenders understand that bad credit or the label of ‘high risk’ gets applied to just about anyone. Small loans are still available to you, but make sure your lender is willing to hear you out and work with you.
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