What is a $1,000 loan?
A $1000 loan is a small personal loan. Borrowers receive a lump sum and must make regular payments every two weeks or once a month, depending on the terms of the loan. The loan term for $1,000 personal loans is usually 6 to 12 months. The monthly loan repayments include both the principal amount and the interest amount, which are calculated based on the borrower's interest rate.
Since this is a personal loan, the borrower is unlimited in what to spend the funds received, for example, unlike with an auto loan or mortgage. Most often, such loans are taken to pay for emergency expenses, install home improvements, debt consolidation, or for rebuilding credit.
The types of $1,000 loans
$1,000 personal loan has four main types: secured personal loan, unsecured personal loan, payday loan, and installment loan.
- Secured loans. A secured personal loan is a loan that is guaranteed by collateral — the borrower's property. A $1,000 secured loan usually requires a deposit as a certain amount of money. This amount of money is called a security deposit. The security deposit is returned to the borrower after the loan is repaid. If the borrower has problems with payments, the lender assigns the security deposit to himself in order not to lose profit. The amount depends on the solvency of the borrower and the conditions of a particular lender. Secured personal loans are great for borrowers with poor credit, as collateral is a guarantee of the borrower's solvency for the lender. Due to this, this loan has a lower APR and better conditions than an unsecured personal loan. The only thing that the lender pays attention to is that the borrower has a source of permanent income.
- Unsecured loans. An unsecured personal loan is a loan that does not require collateral from the borrower. Here, the solvency of the borrower is proved by their high credit score. A loan of this type is riskier for a lender, so it usually has a higher interest rate than a secured loan. Such a loan is more difficult to obtain because the credit score and the borrower's income level must meet certain criteria.
- Payday loan. A payday loan is a short-term loan for a small amount. Usually, such a loan has a loan term of several weeks to a month. The borrower needs to consider that, from a legal point of view, payday loans may have different credit limits in different states. Not all states of the country may have $1,000 payday loans available. A payday loan allows the borrower to get same-day funding. Payday lenders do not do a credit check, therefore, this loan is suitable for borrowers with bad credit. Payday loan has the highest APR among many personal loans. The APR for such a loan can reach up to 400% and higher.
- Installment loan. An installment loan is a type of financing that allows the borrower to pay the loan in equal installments and not in a one-time payment. Generally, such loans are issued by payday lenders and therefore have all the same disadvantages, such as too short loan terms and too high APR. However, installment loans have higher credit limits than traditional payday loans.
Who can get a $1,000 loan?
To be eligible to receive a $1,000 personal loan, the borrower must:
- Be of the age of majority, which is 18 years old.
- Be the United States citizen or permanent resident and provide supporting documents.
- Have a stable source of income. This can be both employment and social payments.
- Have a valid checking bank account active.
- Have an active phone number and email.
The borrower may also face special requirements that are typical for some states. Before applying for a $1,000 personal loan, the borrower is recommended to study the legislation in more detail.
Where to get a $1,000
A $1000 personal loan is a fairly common loan offer, so many types of lenders can offer such financing to the borrower.
- Banks. Some banks issue $1,000 personal loans. Banks prefer to issue loans only to borrowers with good or excellent credit, with a minimum credit score of 670. Banks are the most trustworthy lender. One of the main criteria of eligibility for obtaining a small personal loan in a bank is an active bank account in this bank. This account must be active for several months when applying for a loan. Banks work mainly with their active customers.
- Credit unions are not-for-profit organizations that are engaged in issuing loans. People who deposit funds into a credit union account are considered being credit union members who own some part of the organization. Those funds that are issued to borrowers are issued from the deposits of credit union members. Such lenders most often offer fewer credit options. Usually, a credit union allows a borrower with bad credit history to apply for a personal loan together with a co-signer. This allows a borrower with a low credit score to be qualified for a $1,000 personal loan.
- Online lenders are the most convenient way to get $1,000 personal loans. It allows the borrower to go through the process of obtaining financing online without having to come to an offline office. On the websites of such lenders, the borrower can apply for a personal loan, download the documentation, communicate with a loan consultant, and receive funds in a bank account. The most important advantage of an online lender is the ability to pre-qualify for a loan. Pre-qualification allows the borrower to obtain detailed credit conditions before signing the loan agreement without harm to the credit report. Online lenders make a soft credit check when they issue a pre-qualification, so getting it does not affect the credit score. This allows the borrower to get several pre-qualifications from multiple lenders and compare their loan offers.
- Payday lenders issue short-term loans until the next payday. Payday lenders can be online lenders and have offline stores in which the borrower can receive a $1,000 payday loan in cash instantly. If the borrower avoids taking a payday loan, then they should do so because loans from payday lenders have too high a one-time charge and a high APR of over 400%. This type of loan is much more expensive than similar loans from other lenders.
Qualifying for a small loan amount
Besides the requirements for a credit score of $1,000, loan lenders also have requirements for the maximum debt-to-income ratio (DTI). The DTI ratio is calculated as the amount that the borrower spends on loan payments divided by the amount of their gross monthly income. Here, the DTI can be front-end and back-end. The front-end DTI ratio shows how much of the borrower's income is spent on payments for exactly the loan they are applying for. The back-end DTI ratio includes fees for all outstanding loans of the borrower. Before applying for any loan, the borrower needs to learn rules 28/36. This rule says that the front-end DTI ratio of the borrower should not exceed 28%, and the back-end should not exceed 36%. Sometimes lenders also allow a back-end DTI ratio of 43%.
Time to fund a $1,000 loan
Funding time differs depending on the lender. $1,000 personal loan lenders allow the borrower to receive funds within 1-2 business days. Some lenders can provide same-day funding. However, to get same-day funding, the borrower needs to get credit approval before noon so that the lender has time to process the funding before the evening. Lenders with same-day funding have a higher cost than other lenders because they require an appropriate payment for a quick transfer of finances. Delays in obtaining funds may occur if the borrower received approval before weekends or holidays.
Credit score requirements
Each lender has its own minimum credit score requirement. Usually, $1,000 personal loan lenders require the borrower to have a FICO credit score of at least 610. However, some lenders who specialize in issuing loans to borrowers with bad credit may accept borrowers with a credit score of 550-560 as qualified. Most often, loans for borrowers with bad credit have higher interest rates. The higher the borrower's credit score, the lower the interest rate for a small personal loan they can get.
If the borrower has an insufficient credit score to receive a $1,000 personal loan, then they can apply for a loan together with a co-signer with a good credit history. Thus, the borrower may be qualified for a loan and receive not the highest interest rate.
How much will a $1,000 personal loan cost?
The annual percentage rate (APR) for a $1,000 personal loan varies from 6% to 35%. APR directly depends on the credit score and debt-to-income ratio of the borrower. It also depends on the state in which the borrower receives the loan, since, at the legal level, personal loan lenders in different states have different credit conditions. Besides the APR, the lender may also require payment of some additional fees.
- Origination fees. The origination fee is a one-time fee for the service of the lender. Usually, the amount of the origination fee is from 1% to 5% of the loan amount. This fee is deducted from the loan amount that comes to the borrower's bank account. For example, if a borrower takes a personal loan for $1,000 with an origination fee of 1%, then only $990 will be credited to the borrower's account.
- Prepayment fees. The prepayment fee is a punitive fee for the early closing of the loan debt. At the moment, most lenders do not require payment for this fee. However, this is so because lenders do not allow borrowers to reduce the cost of interest with early payments. The borrower can repay the loan in full in advance, but in this case, they still have to pay the amount of interest that would have accumulated by the end of the repayment term.
- Late fees. A late fee is a punitive fee for late payments on a loan. Usually, the amount of the late fee ranges from $35 to $40. To avoid late fees, it is recommended that the borrower make payments on the loan in advance, as payment processing can take up to 5 working days. Also, the borrower can enable automatic payments that will debit the required amount from their bank account every month using ACH debit.
