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Are you in need of instant cash and you have run out of options? With these tough times, money has become scarce like never before. There are so many needs and sometimes you might find yourself in trouble. Asking for small loans is normal because you will not always have money. Small loans come in handy when it comes to emergency needs. You could have a patient in a hospital who requires immediate attention.
Through small loans, you will be able to get the money that you need and sort your issues out. Small loans are a type of personal loan, which is usually not secured. This means that you won’t be required to provide any form of collateral for the lender to give you the money that you need. Most people have embraced small loans because they are a lifesaver.
Nowadays, you cannot depend much on family and friends to help you with money because everyone has their own needs. However, these loans are not supposed to be used regularly. If you realise that you are constantly taking out small loans, then you have entered a dangerous debt cycle. Below are things you need to know about small loans.
What Should You Consider Before Taking Out A Small Loan?
When you are thinking of taking small loans, the first thing that you have to consider is whether you have met the requirements of the lender. There are very many lenders in the market and these lenders will have different rules and policies.
They will have varying requirements. This is why you need to look at the requirements of the specific lender you are interested in and find out whether you qualify. However, the basic requirements usually include age, income and current financial situation. You need to be an adult who in most cases, should have reached eighteen years.
You also need to have a regular source of income and accessible details of your current financial situation. No lender wants to deal with a borrower that has a poor financial record. This is because they will face the risk of you defaulting on payment. If you have met these requirements, you increase your chances of getting the loan.
The Use Of The Loan
The other thing that you need to consider is what you want to use the loan for. As much as small loans are there to help you deal with any issue, you need to make a smart decision. There are different types of loans that will help you deal with different problems. If for example your car has a problem, it wouldn’t make sense taking a small loan whereas an auto loan is more useful in this situation.
Auto loans are more effective because the interest rate tends to be more reasonable. After all, the lender uses the car as collateral. You, therefore, need to think about the purpose for which you intend to use the loan for. Note that the interest rate of small loans tend to be a bit higher because you don’t give the lender any collateral to stand in for you, in case you fail to repay the loan.
It is important to do your research before taking small loans. Note that the various lenders will charge different interest rates for the same amount of money. Through research, you will be able to choose a lender who offers the lowest interest rate possible to help you focus more on the principal you are supposed to repay, as opposed to the extra interest. Note that if a lender charges a higher interest rate, you incur more losses because you have to pay the interest rate regardless. However, since small loans are unsecured, don’t expect the interest rate to be the same as that of secured loans.
Since small loans do not require any security, the lenders place a lot of emphasis on your credit score. That is the main determinant of whether you qualify for the small loan or not. For this reason, you need to look at your credit score. Note that if you have a poor credit score, the lender will hesitate to give you the loan because they are not confident about your ability to repay the loan.
If your credit score is average or low, the lender may choose to give you the loan, but at a much higher interest rate. You, therefore, need to look at your credit score to know where you lie. If you notice that you have a poor one, you need to apply several strategies to improve your score. For example, you could choose to delay applying for the loan and focus your energy into repaying your other loans. This will put you in good books with the credit bureaus.
Fees And Extras
When you want to get a small loan, the other thing that you need to consider are the extra fees that the lender may throw-in. You will note that some lenders will try to convince you to take an insurance policy or add other fees as you close the loan.
You need to be careful to avoid ending up paying more than you anticipated. In case you are interested in the insurance policy, it is okay because this will save your loved ones from paying your loan in case of a tragedy. However, don’t just agree to everything the lender tells you without doing some research. It is also good to ask the lender which method they are using to calculate the interest rate. Be on the lookout for lenders that use prepayment penalties and pre-compute method to calculate interest. This will work against you if you are not able to pay the loan back in time.
What Are Some Of The Benefits Of Small loans?
Instant Disbursal And Flexibility
Small loans have various advantages over the other type of loans. One is the instant disbursal and flexibility. With small loans, you get to use the loan as you deem right. This is different from the other types of loans such as home loans which require you to use the money for your property alone.
The lender doesn’t even involve themselves to know how you use the money as long as you repay the money at the stipulated time. If you have a vacation or wedding, you can use the money from the loan to organise yourself without feeling guilty. Also, small loans are instant in that you get the money within hours as long as the lender has approved the loan.
One thing that locks the poor people out of many types of loans is the fact that one needs to provide a collateral to stand in for them, in case they fail to repay the loan. Small loans don discriminate in any way because any person can be able to access the loan, as long as they have met the requirements and they have a positive credit score. Individuals who have assets such as shares and a home don’t have to worry about putting their assets on the line and hence, they can preserve their assets.
Unlike bank loans where you are required to produce a lot of documents, personal loans are straight forward. They don’t require a lot of paperwork and processing time that is usually seen in the other types of loans. This makes them efficient because less time used by both the lender and the borrower. As long as you have a national identity card, an income and address proof, and you have met the requirements of the lender, the money gets into your account immediately.
One of the most popular uses of small loans is payment of higher interest credit card debts. Small loans provide you with an opportunity to consolidate all your existing debts and this helps you go through a financial crisis.
Some Disadvantages Of Small Loans
You Can Easily Get Trapped In A Debt Cycle
As much as small loans come in handy when you have faced a financial crisis, they have their disadvantages. They are not the best option for you especially if you have intense debts. This is because once you get used to the habit of taking short loans, it becomes hard to stop taking the loans. This is because you use the small loans as a quick fix to your debt appetite. It is therefore good to use small loans for fixed periods. You shouldn’t use them on a regular because once it comes to a habit, you become dependent on them.
Penalisation For Paying Early
Some types of small loans such as personal loans may attract a penalisation if you make a prepayment. This fee is usually charged if you happen to clear your balance before the time that you were supposed to clear the loan. This is something to pay attention to when you are shopping for lenders to give you small loans. You don’t want to end up paying more money due to a prepayment. You could have saved that money or used it to do other projects which equally matter. Also, note that the larger the loan, the higher the additional fees. You, therefore, need to be careful when you are choosing a lender since policies vary.
Small Loans May Attract Scammers
Unlike other types of loans small loans may be a bit unsafe especially if the lender you borrowed money from is not qualified by the necessary authority. Some may even ask you to provide a prepaid debit card to be used for loan fees, yet they plan to use your personal information for their gain. You, therefore, need to do thorough research, just to ensure that the lender is legitimate and they have the permission to operate in your area. In case you have heard negative reviews about a particular lender, avoid them. There are specific sites that may help you to confirm whether the lender is accredited. It is good to research well because you don’t want to end up in a worse situation than you were before you borrowed money from that lender. If in doubt, you could contact your attorney general’s office for verification.
Everyone needs a little financial help one in a while. Small loans came into existence to help you go through your financial problems and come out a better person. They are really helpful when you are in an emergency and in need of cash. They are also less complicated and instant, hence saving you a lot of time. You only need to be careful to ensure you work with an accredited lender. In case you ever get stranded, consider small loans.
So if you are ready to apply for your small loan today call MiFinance today and let us help you!