Sometimes you only need a small boost to your bank balance, but it can be hard with small personal loans to find the cheapest option.
Here we look at small unsecured loans, credit cards and other options you might not have thought of for borrowing smaller amounts of money.
You may be able to get a small unsecured loan, but it will depend on just how small the amount you want to borrow is. Some lenders will give loans for as little as £250 or £500 but you may find this comes with a very high APR.
Other unsecured loan providers may have more competitive rates, but will not lend much less than £1000, so whether or not an unsecured loan is right for you depends on the amount you need to borrow and the loans available for that amount.
You will also need a good credit rating for these small unsecured loans as the risk to the lender is greater than with a secured loan.
A payday loan might seem like the ideal small loan – they let you borrow between £50 and £1,000 for a few days or weeks until you next get paid.
However, payday loan companies typically charge up to £30 for every £100 you borrow for up to 31 days, which might not sound that bad, but actually equates to 2,255% APR. As of 02 January 2015 the Financial Conduct Authority has capped the interest on payday loans at 0.8% per day.
Payday loans should only be used for emergency cash for a very short period if you have no other options – so it’s probably best to look elsewhere for your small loan.
Using a credit card to get a small loan can be very cost effective if you choose your card wisely. There are plenty of credit cards on the market offering 0% on purchases and if you can pay off whatever you borrow within the interest-free period, your small loan won’t cost you anything.
Remember, the 0% rate only applies on purchases – if you withdraw cash on your credit card for example, you’ll pay a higher rate of interest.
Alternatively, if you can’t pay off your balance in the period, you could transfer your balance to a 0% balance transfer card – you’ll have to pay a balance transfer fee, but your small loan will be interest free for longer.
Another option for getting a small loan from a credit card is a money transfer. Some credit cards offer interest-free money transfers into your current account. You pay a handling fee, but this could still be a very cost effective way of getting a small loan.
Some current accounts come with overdrafts that can be used to provide you with a good value small loan. Some are even interest free for a few months, or even as long as a year.