Small Personal Loans
In recent years traditional lending has been losing ground to a new form of lending. Online lending through small personal loans takes a new approach, one that resonates with today’s borrowers by providing a faster and easier way to borrow money. This however doesn’t mean that online lending has replaced traditional bank loans but instead offers an alternative.
Different types of lending:
Small personal loans are also known as online installment loans or signature loans. The maximum amount you can borrow with one of these loans is $5,000 which is not a small amount, however in comparison with other types of loans, such as mortgage loans or home equity lines of credit which can offer hundreds of thousands of dollars they may indeed seem small.
But this lower loan limit makes small loans ideal for a different type of borrower, one that will use the funds for a wide range of reasons that are less expensive such as: medical assistance, home improvement, debt consolidation, vacations and more.
There are various types of loans that US residents have access to through banks. Different types of traditional loans that banks provide include:
- Mortgage loans;
- Business loans and leases;
- Home Equity Lines of credit;
- Commercial lending services
- Small Business Administration loans
All of these different types of loans are designed to provide very large sums of money over very long periods of time and in general they are secured loans, which means that the borrower needs to provide a guarantor to be considered eligible for the loan.
Traditional loans vs small personal loans:
There are a few major differences between traditional loans that you can get from a bank and online personal loans.
Application time. One of the main difference is the time it takes to apply for the loan. Banks require a lot of paperwork and checks which lead to long approval periods. In the case of small online loans these checks involve mainly the borrower’s credit score and income. This is why most times personal loans are approved and funded within several minutes.
Collateral requirement. Another difference is the need to provide collateral. In the case of some traditional loans like mortgage loans or home equity loans you need to provide a guarantor (your house) to be approved for the loan. This guarantor acts as a safety net and it can be seized if you fail to repay the loan.
Online loans are unsecured in general. This means that your eligibility is based on your credit record and your ability to repay the loan out of your monthly income. The downside is that small unsecured personal loans will have a slightly higher interest rate than a regular loan but can be repaid in a shorter amount of time.
In conclusion, small installment loans are a good choice when you need a sum of money up to $5,000, in a shorter amount of time and without the need to provide a guarantor.