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Steps to get a small personal loan

1. Check your credit report and score. Before you even start the loan process, you'll want to get your credit report and score to ensure there are no errors. You can request a free credit report from any of the major credit bureaus once every 12 months, but know that these reports do not include your credit score.

You'll want to turn an online service like Credit Sesame to get your score - and it's free.

2. Consider the type of loans available. Once you determine how much money you want to borrow, you'll want to figure out what type of small loan is right for you. Your loan type options can include a debt consolidation loan or personal loan. For homeowners, you may want to look into a HELOC or home equity loan.

3. Compare lenders and rates. Before you apply for any loan, it's a good idea to compare offers so you know you're getting the best deal. Some lenders will even allow you to pre-qualify, which won't impact your credit score. However, you'll need to provide some basic documents, which may include personal identificiation, proof of income and employment history. Be sure to read the fine print of all offers and look for any fees or additional charges.

4. Apply for a loan. Once you've found a loan with the rate and terms you're happy with, it's time to apply. When you apply for a loan, the lender will run a credit check.

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Where to get a small personal loan

To avoid getting gouged for taking out a small loan, you can follow some basic rules of thumb. Look for fixed monthly payments and a short repayment term of three to 12 months. Make sure those payments cost you less than 5% of your monthly income. And watch out for a surprise "balloon payment": a large final bill at the end of the term.

Here are three places where you can look for a small loan.

Credit unions

Credit unions are not-for-profit institutions that typically have lower fees than other options. They're supposed to function more like a community than a bank and focus on serving their members rather than turning a hefty profit. You'll have to sign up to become a member before you can get a loan.

For federally regulated credit unions, the maximum APR on a personal loan is capped at 18% — though it's common to pay half that or less. If you just need a small amount — between $200 and $1,000 — credit unions also offer payday alternative loans (PALs). The rules state that PALs can't charge an interest rate higher than 10 percentage points above the rates of other loans (so they top out at 28% APR), and the maximum application fee is just $20.

Credit unions often lend to people who don’t have perfect credit. However, you will need to show proof of income by presenting a recent pay stub or check from your employer. If you're not sure what your credit score is, you might use Credit Sesame to find out your score for free.

Big banks

Getting a small loan might be difficult if you approach a large national bank. Some don't offer personal loans at all, while others offer loans starting at several thousand dollars.

At the lower end, Citibank has loans starting at $2,000 and PNC gives out loans of $1,000 and up. Regional and local banks might also be willing to give you a small personal loan.

However, major banks may push you to sign up for a credit card instead of giving you a small loan. This might be a good way to pay for an emergency bill — but only if you can quickly pay off the card’s balance in full. Carrying a balance over an extended period will cost you quite a bit more in interest payments and may hurt your credit score.

To make the most of this option, look for a low-interest card or one with an introductory 0% interest offer. Credit providers usually offer 0% for just a few months, so make sure to pick a card with a no-interest term long enough for you to pay off what you spent.

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Online lenders

Online lenders can be a good choice if you’re looking for a simple and convenient way to borrow money. Many can get you a loan fast — often by the following business day.

These businesses often evaluate clients differently than traditional lenders when determining whether they qualify for loans and for how much. This means, like credit unions, they may be willing to work with you even if you don't have perfect credit.

Plenty of non-bank lenders compete online, so don’t settle for the first option you see. Those include person-to-person (P2P) operations, which let you borrow from an individual or small group of people rather than an institution.

To get the best deal, compare lenders’ interest rates and repayment periods and ensure they’re a good fit for your budget and income. Just watch out for high "origination" fees when you first take out the loan as well as prepayment penalties if you try to pay off the loan faster.

Credible provides borrowers with competitive, personalized loan offers from multiple lenders at once.

6 small personal loan alternatives

Before turning to traditional lending sources, consider these cheaper alternatives:

  • Arrange a payment plan with the merchant or business. For medical bills, speak to your practitioner or the clinic to set up a payment plan you can handle.
  • Local nonprofit and religious organizations may offer financial assistance and low-interest loans to people who need help paying for emergencies or essentials like rent and utilities. They may even have advisers to get your finances back on track after the emergency has been dealt with.
  • Ask for a paycheck advance from your employer. Many employers are willing to pay employees money they’ve already earned before the end of the payment cycle — especially in the case of an emergency.
  • Ask family and friends for a loan. This is usually the cheapest way to get a loan; just make sure to work out a clear repayment agreement to avoid any stress or tension.
  • Try earning additional income through a sidegig. If you can put off your bill for a while, companies like Uber, Uber Eats, Rover and more offer a quick way to earn extra money when you need it.
  • Sell some of your stuff for quick cash. You can list electronic devices and textbooks you have lying around for free on websites including Craigslist, eBay and Facebook Marketplace.

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Stay positive

Once you’ve dealt with the current crisis, take a moment and breathe a sigh of relief. Then buckle down to ensure you save enough money to make your regular payments.

Months down the line, when your loan is all paid off, you could return to business as usual. However, if you don't want to land back in debt the next time an unexpected expense comes along, it would be prudent to start an emergency savings fund.

After all, if you managed to survive while making payments on your loan, you have enough income to set some money aside in a high-yield savings account. Pretty soon you'll have a tidy sum and the peace of mind that comes with knowing you're prepared for life's next curveball.

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About the Author

Esther Trattner

Esther Trattner

Freelance Contributor

Esther was formerly a freelance contributor to Moneywise.

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The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.