I Need $1,000. Is a Personal Loan a Good Solution?

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

You might need a small amount of money to cover an unexpected bill. Is a personal loan your best bet? Read on to find out. 

There may come a time when an unexpected bill lands in your lap. Maybe you need $1,000 to cover an emergency car repair. Or maybe you need to replace your washing machine out of the blue and you don’t have $1,000 just sitting around in your savings account. Seeing as how 63% of Americans don’t have enough cash on hand to cover an unplanned $500 expense, reports SecureSave, it’s easy to see how you might land in that boat.

If you need access to $1,000, you may have different options. Your credit card might let you take a cash advance, but that could be expensive. You can also look at charging your $1,000 expense on your credit card and paying off the balance over time.

But you may be inclined to look at a personal loan for a few reasons. First, personal loans offer the benefit of fixed interest rates, whereas interest on a credit card can be variable. The rate a credit card charges you can also be significantly higher.

Plus, personal loans allow you to borrow money for any purpose. And they tend to close pretty quickly, which is a good thing if you need money in a pinch. But while a personal loan could be a good solution in theory when you need quick access to $1,000, you might hit a snag for one big reason.

When your borrowing needs aren’t high enough

Some people take out personal loans for $10,000 or more. But if you only need to borrow $1,000, you might run into an issue with a personal loan, since these loans often impose a borrowing minimum.

Why would a lender insist that you borrow more money when you’re willing to borrow less? It’s simple.

Personal loan lenders make money by collecting interest. And they also spend time and resources to put loans in place. The amount of interest they stand to make needs to be worth that effort. A $1,000 principal may not be worth it to some lenders, so you may find as you shop around that you don’t have many options for borrowing such a small sum.

That doesn’t mean you won’t find any options, though. There are lenders who write smaller personal loans. But because you’re whittling down your pool of options, you may end up with a higher interest rate on your loan than you’d like.

Plus, you should know that borrowing rates are up in general right now following the Federal Reserve’s interest rate hikes that started last year. So even if you’re borrowing a larger sum and can find 12 different lenders to write you a personal loan for the amount you need, you could get stuck with an interest rate that isn’t as competitive as expected.

Is there a better option?

If you only need to borrow $1,000 and are struggling to secure a personal loan because you’re not asking for a very large loan, then one option to consider instead is a 0% interest credit card. These cards can be dangerous because they only come with 0% interest for a limited period. And once that period expires, you could be looking at a very steep interest rate on your balance.

However, let’s say you find a 0% interest rate credit card with a 15-month introductory period. It’s conceivable that if you’re only borrowing $1,000, you’ll be able to pay off that debt in that time frame, especially if you’re only tackling your principal and don’t have interest to worry about. You’d need to make payments of just $67 per month to pay off $1,000 within the 15 months in this instance.

Of course, another option may be to ask a family member or friend for a loan. That, however, could make for an awkward situation, so you’ll need to weigh the pros and cons of doing so.

All told, a personal loan could be an option if you need to borrow $1,000. But don’t be shocked if most lenders tell you they won’t write a loan that small.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More