10 lenders that offer small personal loans

If you need to borrow a small amount of money to consolidate debt, pay a medical bill or cover an emergency expense, you may be considering a small personal loan. Smaller loans aren’t likely to earn as much interest for the lender, so not every lender offers them.

But many lenders offer personal loans for amounts of $5,000 or less. Here’s how small personal loans work and where to find them.

• What is a small personal loan?
• 10 lenders that offer personal loans under $5,000
• Pros and cons of small personal loans
• How to apply for a personal loan under $5,000

What is a small personal loan?

A small personal loan is generally considered to be a loan in the amount of $5,000 or less. You can use the funds from a small loan for nearly any expense, including debt consolidation, car repairs, medical bills, or a vacation.

Small personal loans are installment loans. You’ll receive the funds in a lump sum, then you’ll make fixed monthly payments (including interest) toward the balance over a set period of time.

In most cases, small personal loans are unsecured, so they don’t require you to provide an asset as collateral. If you have bad credit you may be able to qualify for a secured loan, which would require collateral, such as your car or a savings account.

If you have little or no credit history, or your score isn’t where you’d like it to be, it may be more challenging to qualify for a small personal loan. Many lenders work with bad credit borrowers, but you’ll pay a higher interest rate to borrow money than someone with good credit.

You can find small personal loans from banks, credit unions and online lenders.

Types of small loans to avoid

When money is tight, it’s tempting to take advantage of any loan offer you receive. But you should avoid these types of small loans if possible:

• Payday loan — Payday loans are small, short-term loans that are typically due by your next payday. Payday loan lenders don’t consider your ability to repay the loan. They also charge sky-high fees and interest, which can equate to an annual percentage rate (APR) of 400%, according to the Consumer Financial Protection Bureau.
• Title loan — With a title loan, the lender requires the title to your car as collateral. If you fail to repay the loan, the lender can repossess your vehicle to repay the debt. Title loans have short repayment terms (usually within 30 days), and they come with high fees and interest rates.
• 401(k) loan — If you have a 401(k) plan, you may be able to borrow funds from the account. But if you take money from your 401(k) before age 59 ½, you’ll pay a penalty on the withdrawal and you may owe taxes on any funds you use. You also may have to repay the loan in full if you leave your current job.

10 lenders that offer personal loans under $5,000

Avant

• Minimum loan amount: $2,000
• Minimum credit score: 550
• Good for: Borrowers with bad credit who need a loan quickly

Discover

• Minimum loan amount: $2,500
• Minimum credit score: 660
• Good for: Borrowers looking for longer repayment periods and no loan origination fees

LendingClub

• Mininum loan amount: $1,000
• Minimum credit score: 600
• Good for: Borrowers who want to apply with a cosigner

LendingPoint

• Minimum loan amount: $2,000
• Minimum credit score: 580
• Good for: Borrowers with subprime credit scores and a minimum income of $20,000

OneMain Financial

• Minimum loan amount: $1,500
• Minimum credit score: None
• Good for: Borrowers with bad credit who have collateral

PenFed

• Minimum loan amount: $600
• Minimum credit score: 660
• Good for: Borrowers who want smaller loan amounts

Prosper

• Minimum loan amount: $2,000
• Minimum credit score: 640
• Good for: Low-income borrowers with fair credit scores

Universal Credit

• Minimum loan amount: $1,000
• Minimum credit score: 560
• Good for: Borrowers with bad credit that would utilize free credit score monitoring

Upgrade

• Minimum loan amount: $1,000
• Minimum credit score: 560
• Good for: Borrowers with fair credit scores looking to rebuild their credit

Upstart

• Minimum loan amount: $1,000
• Minimum credit score: 580
• Good for: Borrowers who have a good education and job history

Pros and cons of small personal loans

Small personal loans have advantages and disadvantages to consider before you apply.

Pros of small personal loans

• Lower interest rates than credit cards — If you use a personal loan to consolidate your debt, you could save on interest compared to your credit cards.
• Fast funding — Many small personal loan lenders offer funding in as little as one or two business days. Some lenders can even fund your loan the same day you’re approved.
• Options for borrowers with bad credit — Even if your credit score isn’t perfect, you’ll likely be able to find funding with a lender that specializes in subprime borrowers. But keep in mind you’ll likely pay a higher interest rate. Lenders offer their lowest interest rates to borrowers with good or excellent credit.

Cons of small personal loans

• Higher interest rates than bigger loans — Lenders may charge higher interest rates for small loans to increase their earnings on the money you borrow.
• May pay fees — Some lenders charge origination fees for processing the loan, or late payment fees. Read the fine print and factor in any fees the lender charges into your total loan cost.
• Risk taking on more debt — If you’re using a personal loan to consolidate debt, it can be tempting to spend on your newly paid-off credit cards, putting you further into debt.

How to apply for a personal loan under $5,000

Once you’ve decided you’re ready to apply for a personal loan, follow these five steps:

1. Create a budget. Decide how much you want to borrow and how much you can afford to repay each month. This will help ensure you don’t overextend yourself.
2. Compare rates from multiple lenders. The best way to save money when you borrow is to compare rates and terms from multiple lenders to make sure you’re getting the best deal for your situation.
3. Collect financial information. You’ll want to have your personal information on hand before you apply, including proof of income, address, and identification. If you have a cosigner, you’ll need their information as well.
4. Fill out the application. Once you’ve chosen the lender you want to work with, complete the application. If you apply online, you may have a decision within a few minutes.
5. Set a payment date that works for you and start making payments on your loan. If you’re approved for a loan, you’ll sign a loan agreement and the lender will disburse your loan funds. Many lenders let you choose your payment due date. Pick a date that works for your budget. You may even be able to save on interest if you opt for automatic payments.