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History of loans
The concept of loans dates back into the historic ages. From Mesopotamia to India to Italy, people have found several ways to taking care of unexpected expenses. Income that could not cover their expenses had to be gotten from other sources.
In 2000BCE in Mesopotamia, farmers who had seeds borrowed against their harvest when they had no seeds to plant with. The logic being that one seed that is planted will yield a lot of seeds. When the seeds yield, the proceeds will be sold and then the loan that they took will be paid back. For example, for every 60 shekels you owed, you paid one shekel. This was a gradual way of establishing order in financial relationships.
The Hammurabi Code
It didn’t end there, in 1754 BCE the Hammurabi Code (an ancient Babylonian code of law) had sections of it determining the terms and conditions of life that existed. The silver coins that were being used at the time had no value as the seeds did, hence a value was established for it. The introduction of the value for the silver demonstrated the earliest forms of interest rates.
Loans in Athens
In Athens, the situation was no different, the amount of interest that was charged on loans was calculated annually at a rate of 10%. If you borrowed say $2000 for one year, you would pay $2,100 at the end of the year. In the event that you were borrowing for 2 years, you’ll pay $2,200. When you were not able to pay back, the lender could either renew the loan payment for another year or take a court action against the borrower.
When you default on the loan, your debt was either nullified or your property was confiscated. Financial matters were deliberated on by a jury of either 200 or 401 men. In the case where the borrower had the means to pay but didn’t, the jury gave the person more time.
More on the history of loans
On other occasions also the jury could decide to let the creditor renew the loan. Renewing the loan meant an increase in the interest by another 10%. Sometimes, if it’s realized that the owner has no way of paying back, the debtor would lose his freedom and become a property of the lender.
What are small loans?
A small loan is a type of loan against which there is no security. As the name suggests, small loans are loans that do not have a huge amount of money involved. Small loans have the characteristic of being the answer when money is scarce and you need to cover an emergency expense. The range for small loans that can be taken varies from $50 – $5000 with a payback duration of between 1 and 6 months for starters.
In some countries, small loans serve as a major financial resource especially for the poor who cannot afford to patronize the larger financial system. In countries like Bangladesh and India with large populations (166 million and 1.3 billion respectively), small loans are available. Such loans are given to individuals to help take care of their children’s education, sustain themselves or purchase land for farming purposes.
Small loans programme in Ontario.
Also, in Ontario for instance, there are programmes that support low-earning women who want to start their own business. They receive mentoring, skills development, life skills and financial literacy. This training is to ensure that women have success in building lasting and sustainable businesses. This will enable them to pay back any loans that they might have taken.
The entrepreneurial mentoring programme is able to accommodate close to 800 women. Those who complete qualify to receive small loans to start their businesses. Small loans can also be helpful to those who have no steady form of income and lack collateral to borrow money.
Before you decide how much you are borrowing and when you would pay, you should take into account your ability to meet your monthly payment obligations. What you borrow and what you can pay back should at the end of the day be a choice that makes you comfortable.
The usefulness of small loans
A common question that sometimes comes to the minds of people is whether small loans are useful. Some have a tendency to brush off its importance or acceptance especially if the amount involved is small. This means a person can miss out on an important business opportunity which could have been financed by a small loan.
Nowadays, getting small loans is not difficult. There are several lending agencies and even credit unions that give small loans. Usually, small loans cater for those people who cannot have access to decent financial services.
The importance of small loans in the financial ecosystem cannot be belaboured especially if you need a quick fix. As it is said, “you never know the value of something until you lose it”. It is when we fall into hard times that we will truly appreciate the importance of small loans in solving emergencies.
Can I get small loans with a bad credit rating?
Getting a bad credit history due to poor saving and spending habits can prevent you from getting a loan of any sort from the established banks. That notwithstanding, there are companies that can still give you a small loan. These lenders provide good terms and interest rates that people with bad credit can afford.
If you get a loan from one of these lenders, make sure you keep up with the regular monthly payments. This is important because when you are able to pay off the debt on time your credit score can increase. Your lenders will then be willing to offer you more credit.
Types of small loans
There are different types of small loans that are available to individuals. A number of them are mentioned below:
• Payday loans
Payday loans are loans that are taken against your next paycheck. The sum of money is borrowed from either family, friends or a lending institution. The loans are then paid back in full at the end of the month when you receive your income.
• Small personal loans.
Small personal loans when taken are normally repaid between 3 months to 1 year. Sometimes, taking a personal loan can be expensive due to the interest rate. Small personal loans can be divided into secured personal loans and unsecured personal loans. Secured personal loans require a collateral before funds are granted to the individual.
Unsecured personal loans are loans that are not backed by collaterals. The interest rate for such funding sources is high due to the risk involved.
• The line of credit loans.
The line of credit loans as a type of small loan is one that allows you access to funds up to a certain limit. You can request a particular amount to be borrowed and once you spend, there is interest paid only on the money borrowed. When you are able to pay back, you qualify for another credit( revolving credit). Interest is charged only on the amount of money borrowed.
Other Small Loan Types
• Fixed -rate loans
This is where the amount to be paid as interest on the loan borrowed remains the same either partially or throughout the life of the loan. Taking a small loan at a fixed rate will mean your monthly payments toward the loan will not change. This is attractive to those who take small loans and do not want their interest rate to vary as they repay.
• Loans for consumer durables
This type of small loan is used to purchase items such as home gadgets and appliances. They include TV sets, microwaves, fridges, phones, tablets. It is convenient for those with regular monthly income as it offers a form of hire purchase to pay for the consumer durables. This is a timely intervention as it allows the individual flexible terms of paying for the items.
Common mistakes to avoid when applying for small loans
1. Little or no research – A little research into the organizations that offer small loans can aid an individual to make the right choice when it comes to going in for a small loan.
2. No prior reading – Lenders may attach incentives to help individuals come in for the loans. It’s advisable that you read what you’re signing up for so that paying back will not be a challenge.
3. Hastiness in choosing – In consumers’ minds, when a loan is small, the terms of repayment are also seen as small. This can be erroneous in the sense that all the terms and conditions differ from one company to the other. Since you’re going to be establishing a form of relationship with the lender, it will be good to take time off to compare the lending options that you have.
Requirements for small loans
• Applicant must be 18yrs and above
• Active bank account
• Proof of a verifiable source of monthly income
• Permanent resident of the country he /she is applying in
How to apply for a small loan
• Calculate the costs
• Review your credit score
• Search for rates that you will be comfortable with
• Measure your options
• Apply through a loan provider, website, credit broker or over the phone.
Uses of Small Loans
1. Paying for a vacation
Nothing can be more distressing than a glaring opportunity to go for the best vacation you could ever have but you don’t have enough funds. This is where a small loan can help to pay for that dream vacation you have been thinking about. With flexible terms of repayment, you will be able to pay for your vacation.
2. Medical Expenses
Having medical bills to pay, can sometimes be frustrating if you don’t have enough money. Small loans are the best option to take you out of that situation. It can be used to pay for some of the bills that have been incurred and also cover the cost of medication.
3. Debt consolidation
This refers to going in for one loan to pay off several loans or debt that you may have acquired. It can also mean using one form of financing to pay off other debts. For example, if you have $1,000, $5,000 in debts to pay, there’s a likelihood that you also have different interest rates to be paid at different times each month.
This can be very overwhelming and burdensome on the individuals budget especially if you are not earning enough to pay for the debts. Thus, bringing all the debt together can serve as a better way of paying off what you owe. This is where a small loan can cater for such payments.
More Beneficial Uses Of Small Loans
A leaky faucet, burst pipe or an overgrown garden can present challenges to the beauty of the home. But if it so happens that there is no money to cover such expenses, the only solution will be to turn to a small loan to help renovate the house.
The cost associated with weddings can sometimes mean going in for a small loan. The small loan can then cater for things like photography, flowers, cake etc expenses that your current budget may not be able to cover.
6. To pay for moving into a new house
In the event that you’re faced with a long distance relocation, some of the cost can be borne by going in for a small loan. For example, you can use the personal loan to buy new furniture or pay the moving company. This can be done after considering the repayment terms and how your income will be able to support the loan.
7. To pay for credit cards
Getting debts from credit cards, going in for a small loan to pay off some of your debt can be a good option. When you go in for a small loan, there are lower interest rates charged. Since the amount involved is not huge, it enables you to pay your debt on time.
Small Loans Usages
8. To pay for funeral expenses
Death comes as an additional cost to families and individuals. With insufficient funds to pay for upcoming expenses, small loans is an efficient way of paying for things such as the services of the funeral director, the hearse etc.
9. Starting a business
When you have a splendid idea that can become a potential business, you can opt for a small loan as a source of finance. Starting a business can be quite woeful when you do not have any capital. Small loans can be a kick-starter for any entrepreneur who is in need of money for business operations. The importance of small loans is key for new entrepreneurs.
Benefits of small loans
1. The approval is fast. Once the documents to support the application is checked, some places boast of getting your small loan within 24 hrs.
2. It serves as a source of funding. For example, those are starting new businesses will use some of the funds to pay for rent and acquire a few items that the business needs to start.
3. It helps to pay for emergency expenses
4. Easy qualifications. The main concern will be the ability to repay.
5. Minimal or no paperwork.
6. It increases your credit score. Since small loans are not cumbersome, the repayment is easy and once you’re able to pay off your credit score increases.
Disadvantages of small loans
1. Owing to the fact that small loans are largely unsecured, it has high interest rates and their repayment period is short.
2. Unsafe application process. Some applicants are concerned about the safety of their personal information.
Small Loans vs Credit Cards
Credit cards and small loans are similar in the sense that first of all, they allow you to borrow money, they both have interest rates and lastly, you will have to pay the money back. The big question is ‘which one will be a better option to choose when you are faced with a financial situation?’.
Small loans have a fixed credit system that it adheres to whilst credit cards give you access to a predetermined limit that revolves. This is because once you are able to pay off your credit you qualify for another one immediately. The downside of this is that your spending cycle does not end.
Also, the interest rate for either a small loan or credit card depends on your financial muscle and the type of loan you’re going in for. Eligibility is not enough to determine what interest rate you are going to pay. Small loans have a low-interest rate whilst credit cards are predominantly unsecured and hence have high-interest rates.
Downside Of Using A Credit Card
The use of a credit card can be a bane because it sometimes allows a wide range of spending. Small loans, on the other hand, are usually targeted towards a smaller expense and with a fixed amount. Hence it does not allow the individual to spend beyond their limit until they have repaid the amount borrowed.
To choose small loans or credit cards to cater for one’s needs largely depends on the individual’s disposable income. The main consideration is how much money the individual has and how much he or she may be expecting to use to defray the debt.
Avenues of applying for small loans
With the digital age upon us, most businesses are becoming prudent in establishing an online component to reach their customers. This is true in especially when it comes to giving out loans. Imagine if you had to visit several institutions to find out the needed information before applying for a loan.
That will take almost the whole of the day, and valuable time will be lost. In current times, to get a small loan is easy as you can enter a company’s website and answer a few questions. You can apply for your small loan and it will be granted to you within a short time. This is a time saver!.
• Asking family and friends
Requesting for small loans from family and friends to support oneself is quite easy it does not require a long process of credit checks. They already have a relationship with you and that is enough credentials to qualify you for the loan.
The interest rates that are charged on such small loans are either minimal or non-existent. You get the funds easily because of your friends and family trust that you will repay on time.
Other Avenues of Applying For Small Loans
• Credit unions
A credit union operates as a not-for-profit financial institution. With credit unions, qualifications for a loan depends on you being a member. This differs from the banks. People who are not creditworthy are likely to get loans from credit unions. Credit unions also tend to have low-interest rates. It has been estimated that credit unions lend to borrowers whose score is below 600.
• Using Mobile Apps
Mobile apps that enable customers to apply for small loans are also increasingly become available worldwide. On google play store, there are a wide variety of apps to choose from.
Mobile Apps Usage For Small Loans Becoming Popular In Kenya.
In Kenya for instance, mobile apps for lending is catching on among its citizens. The M-Pesa system of using the mobile phone as a source of financial transactions is transforming the way people have access to money. There also exists microlending programmes like the Kiva Zip that enable refugees to borrow money to support their livelihoods. Such loans do not have interest rates and fees.
The request for a loan is made online and the payments are made into their mobile money accounts. There is no need for the individual to have a bank account before applying. The amount allowed on your first loan is $125. The moment you are able to pay off the loan, you qualify for other loans.
Some lending institutions, use Artificial Intelligence (AI) and algorithms to provide their loan services. When you download a specific app it accesses your phone information like the GPS, call logs etc. The data coming from your phone is then analyzed and then your credit score and loan amount is then determined.
Small loans have proven to be a very convenient means of meetings ones’ financial obligations. Whether it is to start a business or make a personal pressing payment, you can always rely on several avenues to seek small loans.
When taking a small loan, it will depend on the terms and conditions that are presented to you. The interest rates and fees vary from one lender to another. You would have to read and understand your loan agreement before accepting.
It is advised that you should not use small loans as your income back up but rather for emergencies only as this will amount to unwanted debt. This is because if you are not able to pay, it will affect your credit score. It will mean that some lenders may not accept your subsequent loan requests when you need money to bail you out from a situation.
Click on Apply Now on any part of our After Loans Canada website to apply for small loans. Its fast and secure.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.