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Can I take out a small loan?
The answer is, it depends on what you deem to be a “small” loan. For some people it might be one or two hundred pounds, whereas for others, a small amount may mean a couple of thousand pounds. Just how much you want to borrow will likely influence the type of credit you’ll want to apply for.
Personal loans are usually available for loans over £1,000, so they may be a suitable option if you want to borrow more than that. But what if you want to borrow less?
Consider the different lending options
If you want to borrow £1,000 or more, then a personal loan may be the best option for you. They are also known as an unsecured loans as they aren’t secured against any of your assets.
Just how much you may be able to borrow with a personal loan depends on your income and outgoings, as well as your credit history. When you apply for a loan, a lender will take into consideration how much room you have in your budget for loan repayments – alongside the interest you’ll have to pay.
It’s important you don’t overstretch yourself and borrow more than you think you’ll comfortably be able to repay. Don’t forget, falling behind on repayments can incur costly charges and damage to your credit history.
Because the lender does not have your property as security, you typically need to have a good credit history to take out the cheapest personal loans. If your credit history is patchy, there may still be options available to you– but bear in mind you might have to pay a higher interest rate. Ocean offer personal loans between £2,000 and £5,000 at 44.9% APR representative that may suit you if you have a below average credit history.
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If you want to borrow less than £1,000, then a credit card might suit your needs better. Borrowing on a credit card is in effect like taking out a small loan, and again, how much you’ll be able to borrow will depend on your credit history. Those with better than average credit histories are likely to be able to borrow more than those who have a patchy track record.
If you decide to borrow on a credit card, in most cases it would have to be for a purchase. Whilst you can withdraw cash using a credit card, it’s often expensive – interest is usually charged from the date of the withdrawal and is typically at a higher rate than that charged for purchases.
Some credit cards – known as money transfer cards – allow you to transfer money directly into your bank account. However, these often charge a fee to transfer cash to your bank account.
A credit card isn’t your only option though. If you claim benefits and find yourself in a tight spot, you can apply for a budgeting loan from the government to help make ends meet and pay for things like furniture, clothing or travel expenses. The smallest amount you can borrow is £100 and the loan is interest free.
Payday loans are also available for relatively small amounts. While they have received a swathe of bad press over the past few years due to bad practice and high interest rates, there are now providers who allow you to pay back the loan in several instalments, which may make it easier to manage. However, the APR on this type of loan tends to be high.
You may prefer to approach a member of your family to help you if you’re only after a small sum of money, as this could help you avoid any interest charges. Just make sure you both carefully work out the terms of the agreement before any cash switches hands.
Remember to be responsible
Regardless of how much you’re borrowing and what you plan on using the money for, it’s really important that you consider how you’re going to repay it. Before you take out any line of credit, consider the interest you’ll have to pay on top of repaying what you borrowed.
With a credit card, remember that you must make at least the minimum repayment each month as otherwise you will incur costly charges and suffer damage to your credit history. And, if you’re using a credit card with any benefits such as 0% on purchases, not meeting your minimum repayment will often result in this perk being withdrawn.