Small-dollar loans offer a benefit that few other loans can offer, like quick access to the cash you need, free of hassle. These loans can help households cover expenses when they don't have the cash on hand to do so. If you're unfamiliar with small-dollar loans and how they can help your finances, read on. 

What is a small-dollar loan? 

A small-dollar loan is an accessible, small-scale loan option helping more people access the funds they need in a time of need. Because many financial institutions won't lend small amounts of money to people, these small-dollar loans (usually from third-party lenders) have become an integral part of the economy. They can put cash in the pockets of people who don't need a large loan to make ends meet but rather a small helping hand. 

Types of small-dollar loans

Many common loans fall under the small-loan umbrella. A few common types include:

Payday loans

A payday loan is a short-term loan option that is designed to sustain a borrower between paydays. Usually, these loans are capped at a certain amount according to individual payday loan companies and can get cash into your pocket quickly. 

Title loans

A title loan is a secured loan that requires you to offer collateral to obtain the loan. In the case of title loans, that collateral is most often a car title with the stipulation that if you default on your loan, your car may be forfeited. 

Pawn shop loans

Similar to a title loan, a pawn shop loan requires collateral to get a loan, such as jewelry or artwork. While the collateral can vary depending on the pawn shop's standards, your borrowing eligibility is usually a percentage of the value of your collateral. Keep in mind that failure to repay a pawn shop loan according to the agreement will result in your item being forfeited. 

How a small-dollar loan can help

For many, small-dollar loans are a happy-medium funding option that can help them get the cash needed for unexpected costs or where regular paychecks fall short. They are typically designed to offer short-term relief and can be efficient and have fewer requirements than traditional, larger loans. Some expenses a small-dollar loan may be ideal for include: 

• Funding major life events or changes

• Sustaining your lifestyle until the next paycheck 

• Covering unexpected repairs and expenses 

There are many possibilities with a small-dollar loan, but it's also important to remember that they are not ideal for long-term borrowing. If you're looking for money with an extended repayment schedule, other loans may be better suited for those needs. 

The bottom line

The next time you need a loan to cover expenses, consider choosing a small-dollar loan if it aligns with your financial needs. Designed to benefit you in the short term, these loans are quick to obtain and can be the tool you need to get back on your feet.