It’s possible that taking out a loan for a smaller amount would be more difficult or expensive than one for a greater sum. If you only need a little loan, here are some of the most affordable options to borrow.
It’s always a good idea to have some emergency funds on hand. The desire to borrow money arises when one is short on cash and does not wish to deplete savings in order to cover an unforeseen bill or to take advantage of a particularly attractive offer.
4 ways to Borrow a small amount of Money
There are numerous choices available if you need a loan of less than $1,000. There are pros and cons to each option, and each might have a unique impact on your finances and credit report.
1. Personal Loan
Pros
- You make regular repayments
- Paying the loan off can improve your credit record
- Quick to apply for
Cons
- You may not be able to borrow less than £1000
- Interest rates are higher than for larger loans
- You need a good credit history to apply
A guarantor loan is an alternative to a traditional personal loan if you have bad credit but can get a personal guarantee from a friend or family member who agrees to cover the loan if you can’t.
Although a personal loan is normally reserved for larger sums (£5,000 to £25,000 or more), it is still an option if you need a smaller loan.
How much does it cost? Rates tend to be more competitive for larger loans, so a smaller loan could cost you. There may not be a lot of options available to you if you need a loan of less than £1,000.
How long will it take? It takes just as much time to secure a small loan as it would a larger one. As little as 24 hours after applying, you may find out if your loan has been granted, and the funds may be deposited into your account the following day or the day after that.
Your credit record: A good credit record is necessary for obtaining competitive interest rates. While the loan’s presence on your credit report and its impact on your ability to borrow additional financing cannot be avoided, responsible loan record can actually boost your credit.
2. Credit card
Pros
- Borrowing on a 0% interest credit card is an inexpensive option.
- If you pay them off, it will seem better on your credit record.
- Fast application process
Cons
- It can take a bit for a new card to arrive
- You need a great credit history to receive the finest cards
- Cash withdrawal fees are high.
When you need to borrow a modest amount of money quickly, a credit card is a convenient option. These loans are suitable for amounts of less than £5,000 in most cases.
Depending on your personal situation, most credit cards may allow you to borrow anything from several hundred to several thousand pounds.
How much does it cost? A card with this feature won’t charge interest on purchases for a defined duration. For a small fee, you can use a credit card without interest as a “0% money transfer card” to deposit funds directly into your bank account. Before the promotional interest-free period finishes, pay off the card. Even if you pay your credit card card in full every month, cash withdrawals are expensive.
How long will it take? However, a 0% money transfer often takes two or three days, while a credit card can be used immediately upon approval. When you apply for a replacement card, it may take up to two weeks to receive it in the mail.
Your credit record: To qualify for the finest cards, you need to have a solid credit record. Each credit credit you have will have an impact on your credit score, but responsibly using your cards by paying them on time and never going over your limit will help boost your credit.
3. Overdraft
Pros
- Flexible
- Some banks offer 0% rates
- Quick to arrange if you have an existing account
Cons
- You need good credit
- Overdrawing incurs severe costs
- Bank accounts are required
With an authorised overdraft you can borrow from your bank account by withdrawing cash or using your debit card.
How much does it cost? 0% overdrafts for modest amounts or a limited time are one of the cheapest methods to borrow. Overdraft rates vary per bank, but most are 39.9% EAR.
How long will it take? You can get an overdraft the same day if you have a bank account. Bad credit and limited income can delay it.
Your credit record: Approved overdrafts are recorded to credit reports. Staying under your limit and managing your overdraft will enhance your credit score.
4. Friends or family
Pros
- It’s inexpensive
- Credit record unaffected
- Loan terms are negotiable
Cons
- You need willing friends or family
- No rights or loan terms will exist
- Friends and family will be owed money
It’s cheap and flexible to borrow money from friends and family, but it’s not always the greatest option.
How much does it cost? Borrowing from friends or family may be cheaper, depending on your agreement.
How long will it take? The fastest way to borrow is if the lender has money. If they transfer or borrow money, it may take longer.
Your credit record: Friends and family are less likely to worry about your credit history, and borrowing from them will not affect your credit score.