When you have an urgent bill lined up to be paid, or an unexpected repair cost has arisen then the need for funds for such things require quick solution. Regular personal loans cannot be best suited for these instances as not only are they about a bigger loan amount but also because they take about a week to get disbursed. The best solution for these instances is a small loan or small personal loan. People can also apply personal loan online which makes it an easy process.
A small personal loan is a loan availed of a small amount for a relatively shorter tenure. Generally, it can be availed easily from a mobile app of the lender who provides such small loans with flexible repayment options. Even though the loan amount availed here is small, it is always a smarter choice to plan your repayment to assess how much loan amount would be the right choice for you. This assessment will give you a clear picture of how much you can afford to pay each month and as a general rule of thumb goes in terms of the debt that you should not borrow more than what you can repay.
Some of the examples of expenses for which the need for such a loan arises are the purchase of a latest gadget, medical expenses, repair expenses, unexpected bills, etc.
Types of Small Personal Loans which can help you meet these expenses are:
- Line of Credit Loans: It is also known as revolving credit. Under this type of loan, you are approved for a personal credit limit. You can borrow within the limit and repay each month with interest. The interest you pay is only on the amount you borrow and not on the approved limit.
- Payday Loan: It is a small loan which is borrowed for a month and then repaid in a single instalment with interest. The interest on payday loan varies from lender to lender.
- Small Personal Loan: Personal loans are borrowed for a longer period of time, usually from 3 months to 5 years. The interest charged on personal loans is lower than that of payday loans.
Why Choose a Small Personal loan?
- The interest rates charged on small personal loans is comparatively lower than that of payday loan and line of credit.
- The loan amount you can borrow or the assessment of your eligibility for a loan amount in case of a small personal loan is done based upon your income and repayment capabilities. While in case of payday loan since it is just for a month, the amount is usually low. In the case of Line of Credit, the limit is assessed based upon your monthly income. Sometimes they also require collateral.
- The small personal loan you avail helps improve your credit score when you repay it timely. However, a payday loan does not have enough impact on your credit history as it is just for a month.
- A small personal loan lets you choose the repayment option that best suits you. However, in case of a payday loan, you have to pay within 15 days to a month or by the next paycheck.
- The risk associated with a small personal loan is low as you can pay through EMIs, which will be within your budget. In case of a payday loan, the repayment is to be done in a lump sum with interest which involves greater risk.
Availing credit is not something that should be done without proper thought and analysis.