A few decades ago, the words “small loans” implied serious business. In fact, the only people who would have thought about small loans are those who are planning to purchase their first home, to make the first payments for an automobile, or to start a small business. However, times have changed and so have small loans.
Small loans have evolved to better meet the growing needs of the people. As such, different kinds of offers have emerged to suit different financial needs. Read on to find the kind of small loans which will best fit your needs.
Definition of Small Loans
The term small loans means securing a small amount of money from a certified lending institution. There are four major types of small loans: credit card, pawnbrokers, personal, and payday loans. These small loans are usually available in regular lending companies but online lending companies have also started offering personal and payday advances.
Different Kinds of Small Loans
Different kinds of small loans cater to very different kinds of markets as these loans vary in credit requirements, interest rates, collateral, and convenience.
Credit Card Loans
Certain banks allow their credit card holders to avail of credit card cash advance, wherein the card holders may borrow cash against the credit limit of the card. This kind of small loans do not require collateral since the card holders have account in the bank. The interest rate of this kind of small loans is not that high, having an annual percentage rate (APR) of 14% to 24% but the interest rate is still higher than the rates of credit card transactions.
Card holders who want to avail of the cash advance must first apply for a cash loan, a process which usually takes three to five days. When approved, the money can be withdrawn from an automated teller machine using the credit card. While the loan process might seem simple, getting a credit card is not that easy because credit card applications have a lot of requirements, including a credit check.
Pawnbroker loans are secured short-term small loans which can be obtained in pawnshops. These kinds of small loans have few loan application requirements. No bank accounts and no credit checks are required.
Pawnbroker loans operate the same way pawnshops do. To get the loan, the borrower must pawn or surrender any item of value as collateral to the pawnbroker. The pawnbroker will then give the borrower a cash loan with the loan amount that is about 30% to 50% of the value of the item. The borrower must repay the loan on or before the maturation period which is about thirty days. The interest rates of pawnbroker loans are quite high with an annual percentage rate (APR) of 120% to 300%.
Personal advances are small loans which could be either secure or unsecure and short term or long term. The loan amounts are from $1,000 to $25,000. Personal advances are offered by regular lending companies, such as banks and credit unions, and by online lending companies. This type of small loans, if obtained from regular lending companies, have lower interest rates, with APRs ranging from 7% to 20%, than other kinds of small loans.
However, the loan applications with regular lending companies could take a long time and be quite complicated. For one, personal loans applications have several requirements, including credit checks. Furthermore, the approval of personal loan applications takes around seven to fifteen days. Plus, getting the cash would take a few more days.
Payday advances are small short-term loans, with the loan amount ranging from $100 to $2,500. This kind of small loans are called for payday advances because the borrowers often use them to stretch the paycheck. The loan repayment term also has the same time-span as a regular pay period, ranging from two weeks to one month. Payday advances are available through payday loan stores and online lending companies.
Among the four kinds of small loans, one of the easiest to qualify for are the payday advances. The basic requirements for online payday advance applications are, that the applicant:
a) is of legal age, eighteen years old and above;
b) is a citizen of the United States;
c) has a regular job;
d) has a checking or bank account.
The online application procedure is very simple. The applicant just has to fill up the online application form, attach soft copies of the other required documents for first time borrowers and people with bad credit and submit. The processing period for payday advances is also speedy. Within a few hours, the applicant could get a notification email from the lender and within twenty-four hours the applicant could receive the loan amount in cash.