How to Borrow on Small Loans: Does it Affect your Credit Score?

We all need a little extra cash sometimes, but that doesn’t mean that we want to ruin our credit scores taking out huge loans. Maybe you just need to fix something small on your car, or you want to pay for a new washing machine – how can you find smaller amounts of cash for those simple issues?

While there are plenty of solutions for larger loans out there, it seems like the less you want to borrow, the more you have to pay in terms of interest and other annoying charges. With that in mind, there are still options out there for people who want to make ends meet with a short-term loan.

Credit Scores and Small Loans

As with most things in the financial world, you’ll usually find that the best small loans are reserved for people who have a great credit history. In other words, if you’ve ever had arrears or CCJs that have left a black mark on your credit report, then you might have to pay more in terms of interest.

Though there are several providers out there that are willing to process smaller requests for loans quickly, and without much problem, you may find that you need to go through a lot of complicated and time-consuming forms that you’d rather avoid. Depending on where you go for your small loan, you may either be able to get the money transferred almost instantly into your account, or you might have to wait weeks to see the cash that you need.

Importantly, if you need money very fast, for something like a medical expense, then you’ll need to make sure that you look to do business with companies that can give you money quickly. However, you should try to avoid payday loan options that might end up charging you more than you can pay in interest.

How Small Loans Affect your Credit Score

One of the most common things for people to worry about when investing in a small loan, is how much their credit score will be affected by the money they borrow. It’s important to remember that just because you’re not taking out a huge car loan or mortgage, doesn’t necessarily mean that you’re not going to see the impact of your borrowing in your credit score.

Any kind of borrowing, whether you’re taking money out of a credit card or you’re getting a mortgage for your new home, will be noted on your credit file. That means that lenders and other organizations will be able to take a look and see whether you’ve borrowed money successfully in the past, and whether you can be trusted to pay it back on time.

There are two things to keep in mind when it comes to borrowing for small, short-term loans. First of all, if you think that a small loan will mean that you have to keep borrowing more frequently, this will have a negative impact on your credit score. People who borrow constantly look as though they can’t control their money properly. Secondly, if you borrow for a short time, you need to make sure that you can pay back the loan when you’re asked to do so. If you fail to give payments on time, this could look very bad for you.

Are There Other Options to Small Loans?

Because borrowing a small amount of money from a traditional lending platform like a bank or building society generally isn’t a good idea, you might find yourself looking for alternative lending solutions. After all, small loans from traditional environments can lead to huge interest rates and APR levels.

One of the best ways to avoid taking out a loan in the first place, is to ask a friend or relative to let you borrow the money for a short amount of time. However, the truth is that most of us simply don’t have people in our lives that are capable of giving us the money we need when we need it most. If that is the situation for you, then your best bet may be to use the overdraft facility in your current account.

It’s important to check that you are permitted to use your overdraft facility before you start drawing out more money than you have. A lot of bank accounts come with a standard overdraft facility, and some will even charge a 0% interest amount on small borrowing periods, so long as you don’t exceed a particular limit. However, if your current account doesn’t have a pre-approved overdraft, then you could quickly get into some serious debt.

If you’re not sure what your bank account includes, try visiting your local branch and speaking to someone about your options in terms overdrafts. You may also be able to find more information about your account online.

Leave a Reply