While many loans are meant for making a specific purchase, such as a home or a car, other loans are not backed by collateral at all and instead require that you have a strong credit score. However, if you don't need to take out a very large loan—maybe you only need a thousand dollars—you might wonder what how small your personal loan can be.
Most Banks Have Minimum and Maximum Loan Amounts
The minimum size of a personal loan depends on the bank where you intend to obtain the loan. Some banks offer personal loans as low as $100, but loans under $1,000 from banks are rare. If you need a very small amount of credit, it makes more sense to use a credit card.
There is also usually a maximum amount that you are able to borrow. However, the maximum amount you can borrow varies substantially and it makes sense to shop around for the best possible deal and to find a lender who is willing to offer you a loan at the desired amount.
Small Loans are Beneficial
It's always a good idea to take out the smallest loan possible to accomplish your goal. This will allow you to avoid the temptation of spending money that you don't have. Also, you will pay less interest if you are able to pay your loan off more quickly. You will also make smaller monthly payments, which is more convenient.
It's also much less of a hassle to be approved for a personal loan. Even if you believe you can be approved for a larger loan, there will be more steps you'll need to follow and you'll need to prove your income to a much greater extent.
What to Do When You Can't Take Out a Smaller Loan
If you are not able to find a lender that is willing to offer you a small loan, the next step should be to find a lender who is willing to offer you the best possible terms. Then, you'll take out a loan that is larger than what you need.
In some cases, a larger loan might be beneficial. For example, if you are performing home renovations, you may encounter expenses that you did not expect or you might need to order more supplies. Once you have paid for everything, you will want to avoid spending the rest of the money. You will then be able to pay off the loan much more quickly.
To learn more about personal loans, contact a loan and finance service in your area.