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What Can I Use a Small Personal Loan For?

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Some expenses can break the bank if you shell out too much money from your savings. Small personal loans can help you spread such costs into convenient and affordable monthly instalments over a fixed span. 

Unlike mortgages or auto loans, personal loans are not earmarked to solve a set financial purpose. Instead, you can solve a multitude of objects with a small personal loan – minor home improvement projects, emergency medical bills, vehicle repairs or debt consolidation. 

Read on to find out what you can use personal loans for and how to apply for them online.

What are small loans?

Small loans are short-term personal loans designed to help you deal with minor expenses – car repair, medical bills, regulating household cash flow, and small-scale home improvement expenses. The typical loan amount for a small personal loan is under £2000. Depending on the length of the term, small loans make it easier to afford monthly instalments. 

A small loan usually has a higher interest rate than a typical loan. But the interest that a lender offers you usually depends on your credit score. Your credit score is a lender’s window to peek into your financial standing. Lenders assess their risk of lending based on your credit rating. Therefore, a good credit score can open more avenues, increasing your chances of qualifying for better rates. On the other hand, a bad credit score is a risky proposition from a lender’s viewpoint. As a result, they tend to set a higher interest rate. 

A small loan amount means quick disbursal. Once you have the money, you can use it at your discretion, albeit responsibly. If used well, a small loan is an excellent opportunity to boost your credit score. Making timely payments will help you raise your credit rating. Setting up direct debit payments for your monthly instalments is a good way to ensure timely payments. 

While a timely payment improves your score, each missed payment stays on your report as a negative item, costing you 80 points from your credit rating. In addition, if you consistently fail to make timely payments, the lender may get a County Court Judgement issued against you. A CCJ stays on your credit file for six years and costs you up to 250 credit score points, hampering your chances of securing credit in the future. This might hold you back from fulfilling primary life goals and reaching financial milestones. Thus, it is vital to make your payments on time.

Where can I find small loans (UK)?

  • High-street banks 
  • Online lenders
  • Online brokers such as Oyster Loans
  • Building societies
  • Credit unions 
  • Dedicated lenders 
  • Secured loan providers 
  • Government grants or schemes

Can I borrow small loans for bad credit?

If you’re seeking a good loan offer with a low credit score, you’ve got your work cut out for you. You can apply for small personal loans even with a low credit score, but you may not be able to qualify for lower interest rates and more favourable terms. 

However, bad credit shouldn’t keep you from utilising financial opportunities. Oyster Loans is an FCA approved broker in the UK that enables you to compare personalised loan offers from multiple lenders to find suitable loan offers.

Is it wise to consider small payday loans?

Payday loans are a form of high-cost short-term credit that you can borrow to cover an urgent but minor financial crisis. People often borrow payday loans to regulate their household cash flow since the loans have faster pay-outs. You can pay off a small payday loan within a month. 

Payday loans may not be the best option for borrowers with a low credit rating because these loans have excessively high-interest rates and APRs. The average APRs for payday loans often exceed 300%. However, since these loans have a quick disbursal time and greater accessibility, people continue to borrow them despite the alarming implications. Seeing the rampant growth in the popularity of payday loans, the FCA capped the price of these loans to safeguard the interest of consumers. 

For every £100, the lender cannot charge you more than £24 for a loan with a term of 30 days. If you miss a payment or fail to repay on time, the maximum penalty that a lender can impose is £15, plus the interest on the amount borrowed. The price cap also ensures that you do not pay more than twice what you borrowed.

What can I use small personal loans for?

People use small loans for a variety of purposes, some of which are listed below:

  • Minor home improvements
  • Repair works – vehicle or home
  • Debt consolidation 
  • Settle emergency medical bills
  • Cover wedding expenses 
  • Purchase a new appliance 
  • Buy business equipment

Tips for borrowing small short term loans

  • Check where your credit score stands. 
  • Registering to vote can give your credit score a boost of up to 50 points. 
  • Keep your credit utilisation ratio below 30%. 
  • Try and settle outstanding revolving credit before applying for a loan. 
  • Check your credit score regularly and dispute any erroneous records. 
  • Make a repayment plan and a contingency plan to cover the loan’s payments. 
  • Explore the market for the cheapest option. 
  • Read the fine print and ensure that there are no additional charges involved. 
  • Try to pay off your loan as quickly as you can to save on interest. 
  • Ideally, you should only pay off 30% of your income towards repaying a loan. 
  • Space out your applications to protect your credit score from multiple credit checks.


Small loans are a practical way of financing minor expenses through affordable monthly instalments. However, remember that lenders charge interest for the loan’s entire duration. Therefore, it is in your best interest to pay off your loan as early as you can. 

Remember to make timely payments, for a missed payment on your loan could cost you about 80 points, while a default could cost you 350 points from your credit score.  

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