So you woke up this morning and decided that having flowers delivered to your door once a week would be a novel thing to do. And we don’t doubt it. There are other ways Mozo might suggest you spend your money, but how you decide to spend it is entirely up to you. Um, you need some spare money to do that right?
Extravagant expenses large or small need to come from somewhere. And if you don’t have enough savings in bulk just sitting there in a term deposit for you to utilise at your leisure, then you may want to consider taking out a small loan. We’re not kidding. Promise!
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I just need a small amount of money
That’s cool. We get it. Taking a step back from your situation will give you space to think about the next best steps. Do you really need to make this purchase? Yes? then, treat the borrowing situation like you would if you were borrowing for a car or a house.
Set up a financial plan to help you understand how you can budget your repayments around your everyday expenses and how much time you need to pay it off in full. Remember, the quicker you repay it the less you pay in interest and therefore accumulated debt. Plan it right and you can save hundreds in the long run.
How do I borrow less than $5k?
Sounds funny doesn’t it? We’re so used to borrowing large sums of money that we don’t even think that borrowing less than $5000 is a possibility. But it is. Most banks and peer to peer lenders won’t even ask you why you need it. All they're interested in is if you can repay it. Prove that and you can have your dollars. Here are some avenues to consider:
Secured or unsecured personal loan: That is the question. In most cases, if you’re wanting a small amount to tie you over for whatever reason, you may just want to opt for the unsecured option. It means less paperwork and you don’t have to involve any of your assets. The main difference is you’re likely to pay slightly higher in interest rates. Weigh it up and see how what repayments you can budget in.
Credit card: Have you thought about opening a credit card instead? Credit card limits come in all shapes and sizes so there’s bound to be a product that will suit you and your short term needs. If you catch a product at a good time, then you may even be able to secure an awesome rate during their promotional season. Try Mozo’s credit card comparison tool to see if you qualify.
Cash, fast: Hold on a sec. Mozo just wants to say: What’s the hurry, Murray? If you’re in some sort of a hurry to get spending quickly, then chances are you’re looking for cash fast. There are a number of fast cash lenders that offer small loans under $2,000 but these will come with a catch in the form of extraordinarily high interest rates. We just don’t recommend these providers. Look for other ways to get extra cash fast like putting some of your unloved things on eBay or if you’re having trouble paying a utility bill, talk to the provider as many have installment plans and hardship options which can spread the cost out over a longer period.
What we do recommend is taking your time. A large sum or small, money is money. What we’re saying is, it doesn't matter what amount you’re needing to borrow, you should take all money matters seriously and with caution. After all you have your credit rating on the line.
Pros and Cons of a credit card for small loans
We love credit cards. A bit of plastic. Imaginary money. It slides conveniently into your wallet, fits in the tiniest hand bag. Oh look, no one knows it’s in your back pocket. Problem is that it’s just too convenient. Let’s have a closer look:
Pros: fast convenient access to money when you need it. Suitable for purchases online or instore. Safe to use as usually protected with a security pin that you create.
Cons: fast and convenient access to money. Fullstop. After using credit card for the original purpose, you may be tempted to continue to use available credit, potentially spiralling you into more debt. Tip: After using the credit card for the original small loan purpose, put it in a safe place for a rainy day and avoid use it for everyday spending. And don’t use your credit card for cash advances. You’ll start paying high interest immediately and there are extra fees involved.
How do I compare small personal loans?
It may be an itty bitty loan, but you still need to treat it like you would any other loan. The types of things you may want to consider include: fees, interest rates, features and repayment options. Where one loan option has an incredibly low interest rate, it may have a high monthly administrative cost attached.
The best way to compare loan products is to use Mozo’s comparative small personal loan comparison tool - a perfect way to get a quick snapshot of the loan products available to suit your need most.
Like with any decision you make, there’s a whole lotta things you need to consider before signing off. A small personal loan may not seem like a big deal, but when you think about it, as soon as an amount is in your name, it automatically becomes your money and your responsibility. Paying it off is just part of the bigger picture.
You’ll find there are a handful of finance providers that offer small personal loans with with a fee when you sign up. But more and more banks are waiving the sign-up fee or at least have very low sign-up costs compared to others. So it’s a good idea to see who’s got an introductory offer available - why not take advantage of a promotional period while it’s available and save yourself $50-90. That buys a lot of coffees!
Other fees that might sneak up on you include monthly account keeping fees and late fees. If you’re not careful, you could see yourself adding to your small debt. May be small, but there’s need to simply give money away! Set up a monthly direct deposit 3-5 business days before your due date so that you never miss a payment.
Check out Mozo’s Personal loan reviews for an unbiased reflection on what different products mean to different people.
When you begin your research on small personal loans or credit cards, you’ll quickly realise that the interest rates vary widely. From nought to high, there’s something for everyone it seems. But who wants a high interest rate?
You may find that there are super low interests rate offers or even $0 as an introduction to a loan product. Often short-lived and capped to a certain time-period, you’ll want to pay attention when the ‘honeymoon’ period ends because chances are the rate will change considerably.
Look at the comparison rate when comparing your options as this rate includes the headline rate and any fees to show you the true cost of a loan.
Interested in reducing your debt before the end date? Want to make more regular payments? Thinking about a redraw facility? Let’s look at the feature options that may be available:
- Extra repayment: Being able to pay more toward the money you owe is classified as a ‘feature’ in banking. If you have the flexibility to contribute more money toward your loan, then you could be saving $$ big time.
- Redraw facility: May not be plausible with a small loan, but there's no harm in asking. Redraw means that you can borrow the money back that you’ve contributed toward your loan. sounds a little silly, seeing as your aim is to pay off your loan not let it drag on forever.
- Repayment options: Weekly or fortnightly repayments - as most loans are set up for monthly repayments, have a more regular injection may help with your everyday budgeting. Try it and see for yourself.
How to budget repayments
This is primarily a trial and error situation on your behalf. You need to work out what works best for you, your income and your regular expenses. If it’s easy to lose track of bills and due dates, you may want to set up reminders in your smart device. Better still, set up direct deposit payment via BPAY so that you avoid late fees and never miss a bill.
How do I apply for a small personal loan?
It’s the same rigmarole you go through for any loan, whatever the amount. Essential items you need to have on standby include:
- proof of income
- proof of assets
- number of dependants
- information on outstanding debt
- a sum of available credit available
- have a good credit rating
- and be at least 18 years old.
I think I have a bad credit rating, what are my options for borrowing?
Oh. Well at least you’re honest about it. Instead of wishing your situation was different, now’s the time to front up about it and make a change for the future. Paying bills on time as well as repayments of credit card or loan debts on time says a lot about your future borrowing power.
With a current bad credit rating, you may have little borrowing power now, but if you keep your repayments up for at least the next 6 months, you’ll find that your credit rating will improve. Bit by bit.
As a first step do a full financial audit of your bank accounts and detail out your income /expenses. You could be paying old gym memberships or magazine subscriptions that you’ve forgot about or you might be able to cut back on your phone or energy usage. If you don’t know how to draft up a budget, try using Mozo’s free budgeting calculator.
If you do need to borrow a small amount of money ($2000 - $5000), rather than opt for fast cash lenders, consider a peer to peer lender. Some peer to peer lenders have tiered interest rates which mean that the lower your credit score, the higher your interest rate will be but it will still be generally less than the rates charged by fast cash or payday lenders.