If you want to borrow a small amount of cash, you may think the only way to do this is with a credit card.
However, it is possible to get a loan for a relatively small sum. There are two types of loan: secured and unsecured. Secured loans are secured against your home (which is why they’re also called homeowner loans) and are designed to let you borrow a large sum of money and pay it off over a long-term in manageable monthly chunks. This is because the lender has your home as security.
An unsecured loan, meanwhile, isn’t secured to anything. Because of this it usually lets you borrow a smaller sum of cash you must pay back in a shorter period of time – and the interest is often higher than on a secured loan.
How much can I borrow?
While homeowner loans can let you borrow up to six-figure sums (depending on the lender), unsecured loans, also known as personal loans, provide you with smaller sums. As a rule, a personal loan lets you borrow from £1,000 up to around £5,000.
How much you can borrow will all depend on the lender you apply to, your own circumstances and your credit history. This will also affect the interest rate you’re offered.
Lenders look at your credit history to see how well you’ve managed credit in the past. If you have always made your payments on time each month and never missed one, you’re likely to have a good credit history. If you have been late with the odd payment, you may not – and this will have an effect on how much you can borrow.
Your credit history will also affect the interest rate you’re offered. But it’s not the only thing taken into account – lenders will also look at how much money you have coming in and going out of your account.
But I want to borrow less than £1,000
If you want to borrow less than £1,000, a personal loan might not be your best option. Instead, you could consider a credit card.
Credit cards let you borrow money as you go, rather than as a one-off payment. Unlike with a personal loan, your repayments on a credit card will be different each month depending on what you’ve spent.
If you clear your balance in fill each month, you won’t have to pay interest for using a credit card. You must make at least the minimum payment on time every month, but we advise clearing as much of your balance as possible to keep the interest you’re charged down.
There are other options if you want to borrow a small sum. Payday loans have had some bad press in recent years, but there are now payday lenders who let you pay back the money you borrow in chunks rather than all at once. This can make the repayments more affordable, although the interest on this type of loan can be high.
And you may qualify for one of the government’s Budgeting Loans. You can find out more about these here.
Disclaimer: All information and links are correct at the time of publishing.