Getting a small loan under $2,000

By: Matthew G Young

Small loans less than $2,000 are relatively easy to secure for individuals with a good credit score. If you have a poor credit rating though, do not abandon hope. True, the better your score is, the more options you will have available as far as lenders go, but if you are looking for an amount of $2,000 or less, you will still have many options since a small amount is more likely to be repaid than a larger amount.

Credit Unions and Banks

Because credit unions are selective of who can join, they generally have access to loans with low interest rates. If you belong to a credit union, this should be your first stop. If you do not belong to a credit union, try finding one where you meet their eligibility guidelines. Many companies offer credit union services to their employees, but your employer is not the only eligibility requirement that credit unions look at. There are more credit unions out there than solely employer sponsored ones. A bit of research can save you money in this case, so do not hesitate joining a credit union if you can find one that fits your lifestyle.

Banks also offer competitively priced personal loans. Try the bank that you belong to first as your existing relationship may allow you to take a loan out at a lower interest rate. But be sure to shop around before you commit to any particular one; different banks will offer different terms and rates. The more options you consider, the more likely you are to find a loan that fits your needs.

Online Lenders

An online search will yield even more choices for you. Sites such as www.lendingtree.com will improve your loan search by giving your information and loan needs to many different lenders and allow you to pick which loan will best suit your needs. This type of web site advertises that lenders will "compete" for your business. When looking online for a loan, be aware that there are many scams out there. Do not give your banking information out to just anyone; rather, make sure that you have established a contact with the company that you have either met with face-to-face or spoken with on the phone.

This category includes what are called "high-risk" loans. These loans will have a higher interest rate than their "low-risk" counterparts. Because banks realize that not all of their customers have perfect financial records, many have loans that are designed for people with lower credit scores. But banks do need to protect themselves from defaulting borrowers. High-risk loans have a much higher interest rate than other types of loans because of this.

Sometimes, high risk loans are arranged through an intermediary. These businesses act as a buffer between the individual and the final lender. The intermediary can oftentimes get a high risk loan at a lower rate than the lender themselves could get. This is because the intermediary will assume some of the risk if the borrower does default on the loan.

Peer-to-Peer Lending

Another excellent method of securing a personal loan for under $2,000 is to go through a peer-to-peer lending service. This is a relatively new phenomenon and has increased in popularity with the advent of the internet. By putting hundreds of millions of people only a click away from each other, the internet has succeeded in connecting the people who need money with the people who are willing to lend them that money. Peer-to-peer lending rates are determined by the two parties involved; it is not unusual for a peer loan to have an interest rate lower than an average automobile loan. A credit check is only run if the lender requires one. In fact, lenders liken peer-to-peer loans to investments. The money that they lend earns an interest rate much like a bond would. One additional advantage of a peer-to-peer loan is the personal interaction. Rather than dealing with a faceless entity such as a bank, peer lenders are real individuals. You can share your need for a loan with prospective lenders, allowing you to secure a possibly lower interest rate based on sentimental reasons. Sites that offer this service include www.prosper.com and www.lendingclub.com.

Credit Advances

A less appealing way to take out a small personal loan is through a cash advance on a credit card, either by opening a new card or using an existing line of credit. Credit card cash advances should not be a first resort since the interest rate on cash advances is generally high. You can apply for a new credit card at your bank or through an online vendor. Again, the main advantage of looking online is that you can quickly compare competing rates.

Payday Loans

Your last option is a payday loan. Payday loans are notorious for having high interest rates since the term of the loan is usually so short. Because the term of these loans is only a week or two, these types of loans are last resorts. You can usually get a payday loan for up to $1,500. This amount does not include the fees and interest that would be tacked onto the loan. If you do default on this type of loan, the penalty fees can be astronomical. But if you repay it on time, or only default on the loan (roll over the loan) a couple of times, the fees are manageable and not too high.