How to get a small personal loan

A personal loan can come in handy for many reasons – medical expenses, car repairs, much-needed home improvements, or small debt consolidation. And if you're considering a small personal loan, which hovers around $5,000 or less, you'll find that such small personal loans exist. For example, loans from Rocket Loans start at $2,000.

To make for a speedy and smooth process, it's a good idea to learn how to apply for a small personal loan – and what to consider when you're reviewing your loan options.

Here, we'll walk you through what you need to know.

Key takeaways:

• A small personal loan is a loan that doesn't require collateral and is usually for amounts up to $5,000.
• The proceeds can be used to cover unexpected costs, consolidate credit card debt, and pay off medical bills.
• The steps to apply for a small personal loan are straightforward, and you might be able to receive same-day funding.

Understand your credit score

One of the most important steps to take before you jump in with both feet and apply for a personal loan is to check your credit report and review your credit scores. You can get a free credit report weekly from each of the three major credit bureaus – Experian®, Equifax®, and TransUnion® from AnnualCreditReport.com.

And while each bureau gives you the option to access your credit score, this typically comes with a cost. You might be able to access a credit score for free from a credit monitoring service, money management app, or major credit card issuer.

Looking over your credit information helps you better understand your creditworthiness, or an assessment of how likely you are to pay back a loan. Plus, lenders will have credit score minimums for personal loans. Looking over your credit and score helps you gauge your odds of getting approved for a loan from a particular lender.

Most lenders require a minimum credit score of 610 – 640 for personal loans. In some cases, you'll be able to qualify for a loan with a minimum score of 580. Rocket Loans generally requires a credit score of at least 640. These are just the minimum scores. A higher score may mean you could receive more favorable interest rates. 

Get prequalified and compare lenders

When you get prequalified, the lender has looked over your creditworthiness to figure out how likely it is you'll qualify for a small personal loan. You'll be able to see what loan amount and interest rate you might get approved for.

When you get prequalified for a personal loan, it's not a guarantee of getting approval. You can think of it as a way to understand the loan amount, rates, and terms you might get approved for.

A prequalification results in a soft pull on your credit. In turn, it won't negatively impact your score. Plus, it doesn't require a deep assessment of your credit history or finances. Once you get prequalified with several lenders and have this info in tow, you can compare rates, terms, and monthly payments. This can help you decide which lender to go with.

Read the details to learn more about hidden fees

While getting prequalified lets you stack rates, terms, and monthly payments against each other, you'll also want to compare additional fees and hidden costs, too.

Personal loans usually include an origination fee, which may be 1% – 10% of the loan amount. They might be paid up front, deducted from your loan proceeds, or folded into your balance and paid off over the life of the loan. There might also be an application fee, late payment fee, insufficient funds or overdraft fees or other costs – which all add to the cost of borrowing.

Assess your financial situation

Besides your credit score, your debt-to-income ratio (DTI) also plays a crucial role in the loan application – and approval – process. On top of a minimum credit score, which ranges between 610 – 640, lenders also prefer a DTI of less than 36%.

Your DTI is your total debts against your gross monthly income (aka the amount before taxes and other deductions). Debts included in your DTI calculation include:

• Car loan payments
• Student loan payments
• Minimum credit card payments
• Alimony
• Child support payments
• Monthly rent or housing payments
• Mortgage payments
• Personal loan payments
• Any miscellaneous debts

What's not included? Utility bills, food, and other expenses are not considered debts.

Review your budget to understand loan needs

Before you decide on taking out a small personal loan, take a good, hard look at your budget to understand the impact the cost of a new loan will have on your finances. It's another monthly payment you'll need to make throughout its duration.

If you don't think you can feasibly afford another recurring bill, see if you can cut back on any spending categories. If not, you might want to give it more thought.

It's also a good idea to calculate your total loan needs. It's crucial that you have a good idea of exactly how much you need to borrow. That way, you won't overextend yourself. On the flip side, you don't want to fall short of how much you actually need to cover the necessary, unexpected costs.

If you plan on using the personal loan proceeds to consolidate credit card debt, inquire about your credit card balances and interest rates. Or, if you plan on putting the funds toward medical debt, calculate the total costs. If you're planning on using the money for home improvements like repairs or renovations, get estimates.

How to get small personal loans online

The online loan application process is a simple and straightforward one.

Application steps and requirements

Now, let's take a look at the steps involved in applying for a small personal loan:

1. Gather all necessary documents. This includes payment stubs, bank account information, tax returns, proof of identity, and proof of address. You'll also likely need to provide your monthly housing costs.
2. Complete the loan application. Make sure all required sections are completed. Missing information may delay the loan process. Completing everything means your loan application can be submitted without a hitch.
3. Submit the application and documents. Lenders should provide a secure portal for all document submissions. If there are any questions about the security of a site, reach out to the lender as soon as possible.
4. Wait for the loan approval. If you applied with an online lender, you can expect a formal decision on your personal loan application within 1 – 3 business days. In some cases, loan approvals can extend over several weeks, for example if the lender needs additional documentation from the prospective borrower.
5. Receive the loan approval and the loan funds. Some lenders, including Rocket Loans, may offer same-day funding.
6. Once you receive the proceeds, come up with a financial repayment plan and make sure you stay on top of payments for the loan.

Alternatives to small personal loans

If you need a fairly small amount, you might need to get a personal loan. Here are some alternatives:

Tap into savings

If you have personal savings shored away, you might want to decide to use the funds to pay for these emergency expenses that popped up.

Using a rainy day or emergency fund can lead to financially hard times down the road. Especially if an additional unplanned expense comes up down the line – and you find yourself short on funds. However, tapping into funds from a savings account can help you save on interest. It also means no monthly payments and doesn't add to your debt burden.

You could decide to tap into your savings to cover part of the expense and finance the remainder with a personal loan. If you decide to go this route, you can make a pact to yourself to slowly replenish your emergency fund. For example, when you have the means, autosave a small amount each week or month.

Take out a family loan

If you're looking for a no- or low-interest loan option, borrowing from a trusted friend or family member could be a good option. While you won't need to worry about paying interest fees, borrowing money from a relative could potentially strain relationships.

You'll want to weigh the risks and benefits of going this route. If you want to explore this option, make sure you pay close attention to their expectations and concerns, and draft a document with the terms and agreed-upon repayment plan.

Use a 0% APR credit card

If you have very good or excellent credit, you might qualify for a promotional 0% annual percentage rate (APR) credit card. This means you can tap into funds without needing to pay interest in the balance for a limited time.

However, you'll need to pore over the terms and conditions of the card, and be mindful of when the introductory zero-APR rate ends. Once the promotional period is over, the standard interest rate will kick in. If you're not prepared to stomach the interest fees and increased cost, it could potentially put you in financial hot water.

If you're mulling over this option, come up with a financial plan that helps you pay off the borrowed amount before the promotional period is up.

Take on a side gig

Whether you're a rideshare driver, a pet walker, or you deliver groceries, taking on a part-time job or side gig can provide an extra revenue stream. This additional income can be allocated to pay for emergency expenses or repairs.

Of course, you'll want to make sure your moonlighting doesn't clash with your full-time job or other employment. Only do as much as you can handle. Ideally, switch things up and find flexible side gigs.

The bottom line: Applying for a small personal loan is a straightforward process

A small personal loan is a loan that provides you a lump sum upfront that you're financially responsible for making payments on. They can be used for anything from consolidating credit card debt to covering medical bills to making home improvements.

To apply for these loans, you'll want to review your credit and scores, get prequalified, and gather the necessary documents. It's likely a lot easier than you think, and the money can be used to help you get out of a financial pinch. Get prequalified for a small personal loan with Rocket Loans today.

Same Day Funding available for clients completing the loan process and signing the Promissory Note by 4:00PM ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary and your bank may have rules that limit our ability to credit your account. We are not responsible for delays which may occur due to incorrect routing number, account number, or errors of your financial institution.

All personal loans are made by Cross River Bank, a New Jersey state chartered commercial bank, Member FDIC, Equal Housing Lender. All loans are unsecured, fully amortizing personal loans. Eligibility for a loan is not guaranteed. This is not a deposit product. Please refer to our Disclosures and Licenses page for state-required disclosures, licenses, and lending restrictions.

Borrower must be a U.S. citizen or permanent U.S. resident alien at least 18 years of age. All loan applications are subject to credit review and approval. Offered loan terms depend upon your credit profile, requested amount, requested loan term, credit usage, credit history and other factors. Not all borrowers receive the lowest interest rate. To qualify for the lowest rate, you must have excellent credit, meet certain conditions, and select autopay. Rates and Terms are subject to change at any time without notice.

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