A small loan is a personal loan that can be used for planned as well as emergency expenses. The maximum repayment term for these loans is up to a year. When the borrowed sum is to be paid down in fixed monthly instalments, they are called instalment loans. However, when the loan amount is exiguous, the loan amount will be paid in one fell swoop. The repayment term for these small loans is not more than a month. Most of the time, they are paid back within days.
Getting a small loan is not so difficult despite an abysmal credit rating if you are to borrow a small amount of money. All emergency loans are paltry, so lenders would not be able to put you on an instalment repayment plan. The lending decision is made based on your income sources. Even if you are a subprime borrower, you can easily take out small loans. However, you will be charged high interest rates.
If you are looking to take out a large loan, it could certainly be difficult to get the nod from a direct lender. The approval criteria become slightly stricter, especially if your credit score is not up to scratch.
How to get a small loan without any complicated procedure?
Here is how you can get a small loan without any complicated paperwork and related formalities:
A strong credit score
First off, whether you apply for a lump sum small loan or an instalment loan, you cannot completely escape paperwork. There is no doubt, especially if the borrowing sum is large, that lenders would peruse your credit report and income sources. Of course, they would require you to submit pay slips for the previous six months.
You will also have to provide additional details such as:
a) Whether you have a side gig such as babysitting, Uber driving, or freelancing
b) How many family members are financially dependent on you?
c) Details of your expenses
d) How much debt do you currently owe?
Having all these details, lenders decide how much money they would be able to lend you when you provide all the essential details while filling in the application form. This speeds up your loan process. Make sure that you keep your income documents and pay slips ready, so you can submit them as soon as your lender asks.
Despite a subprime credit rating, you can have a lender sign off on your application, but they will charge high interest rates. If your credit rating is stellar, you would be able to qualify for small loans at low interest rates. Undoubtedly, small loans at affordable interest rates will make it easier for you to manage payments. Since payments are made in fixed instalments, this is also a reason why small loans are manageable.
A low debt-to-income ratio
A debt-to-income ratio is an important aspect when it comes to deciding on how much money should be lent, whether you are borrowing money for a small emergency or planned expenses. This ratio indicates how much debt you owe against your income. A higher ratio will call your credibility into question. Most of the lenders will probably assume that you would be able to cut it. Henceforth, you will most likely fall into an abyss of debt.
Bear in mind that your credit score is not affected by the total amount of debt you owe, but lenders consider this as an important factor to determine your repayment capacity. If your debt-to-income ratio is very high, you will most likely be turned down. A golden rule of thumb says that you should maintain this ratio at 30% or lower. Going beyond that will raise scepticism, and your lender will repudiate your application.
Your relationship with a lender
Undoubtedly, you will have to submit your income proofs to prove to your lender that you can repay your debt on time. It depends on the lender whether they would require you to submit pay slips of the previous three months or six months. When you are taking out an instalment loan, you will certainly have to go through such formalities, but when you are looking to borrow a small amount of money to be paid down in one fell swoop, you do not have to fulfil such formalities.
You simply have to provide your income and expense details in an application form, and your lender will make the decision based on that. Of course, you are supposed not to lie. If you have borrowed money from the same lender before, it will be much easier to qualify. This is because they would have all your details already.
Do not owe high-interest debt
When you are borrowing money, your lender will see whether you owe money or not. It is always recommended that you never owe any money at the time of especially bad credit loans with guaranteed approval.
If you owe high-interest debt such as payday loans and other small emergency loans, you will certainly have difficulty qualifying for a loan. You should try not to owe any loans at the time of taking out small loans.
Do not forget credit card debt. If you use your credit card too frequently, you should make sure that your credit utilization ratio is not more than 25%. Make sure that you discharge your credit card debt in full every month.
The final word
In order to get a small loan without any complicated paperwork, make sure that you borrow money from a lender from whom you have borrowed before. Your relationship with them will help you speed up the loan process without going through convoluted paperwork.
In addition, you must have a good credit score. Your lender will likely consider your application without any complications when you prove that you managed payments in the past very well. Further, you should keep your debt-to-income ratio and credit utilization ratio low. When your credibility is not called into question, your lender will not ask you to go through loads of formalities and paperwork.
Also read what credit score is needed to qualify for car finance.
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