Financial Fundamentals Blog

Specialized Loans: Why a Smaller Loan Can Really Make a Big Difference


Everyone is feeling their budgets becoming tighter as a result of rising inflation. From gas to eggs to clothes, prices are continuing to rise, making it harder to put aside money into savings or have funds for an emergency. 


There are different types of small specialized loans that can help out when you’re feeling squeezed by your budget or you need additional funds quickly. A small specialized loan can also help borrowers build their credit, especially when they have very little — or a poor — credit history.


With so many loan options out there, it can be difficult to determine what the best loan is for you and your family. Let’s take a look at some common types of small loans and what they offer.


Which specialized loan is best for you and your family?

Small loans include title loans, payday loans and specialized loans from financial institutions such as 7 17 Credit Union. Each loan provides a small amount of funds without a credit check; however, it is important to beware of some pitfalls with title and payday loans.


Title Loans

A title loan can seem ideal for those looking for a small loan in order to build credit. However, there are many disadvantages to title loans, making them a risky financial decision that should be avoided. 


Title loans don’t run credit checks but require an asset, such as a car, for collateral. The loan company lends up to 25% of the car’s value. Loans are typically for $1,000 but start as low as $100. 


As stated, title loans have many disadvantages. If the applicant’s car is used as collateral, they’re required to own their car and sign their title over to the loan company.  It’s important to note that the title stays with the loan company, so if the borrower doesn’t repay the loan according to the agreement, the car can immediately be repossessed. 


Another risk of title loans is the exorbitant annual percentage rate (APR) and interest rate. The APR may reach as high as 300%, and the interest rate often climbs over 100%, making the loan very hard to pay off. The APR and interest rate combined with the loan’s payoff terms can put those in need in additional financial hardship. For example, the loan agreement can state that the loan must be paid back within one month or over the course of multiple years.


Payday Loans

A payday loan (also called a check advance or cash advance loan) can often seem ideal for a short-term financial solution. After all, it’s just your paycheck, but you receive it earlier, right? Wrong. These types of loans are actually quite deceiving and also come with a number of disadvantages.


Payday loans are short-term loans that don’t require a credit check, which can be beneficial for those looking to build their credit. However, they do require proof of income in order to apply because the amount borrowed is a portion of the applicant’s paycheck. 


One of the disadvantages of payday loans is the high APR and interest rates. While these loans don’t require collateral, they have extremely high interest rates and added fees. For example, the APR can reach as high as 780%, with the average APR reaching 400%. 


High APR and interest rates are further complicated by loan agreements that state the loan needs to be paid back within a very short time — generally less than 30 days — which can be difficult for borrowers who were in need before the loan was taken out. Because there isn’t a credit check for payday loans, lenders don’t take into consideration the applicant’s ability to pay back the loan, thus loading additional debt onto borrowers.


Specialized Loans

Considering the risks associated with title loans and payday loans, they may not be smart financial decisions, especially during inflation periods. When the cost of everyday goods and services is rising, making a short-term financial decision that carries a lot of interest and high APR combined with a quick repayment period may add extra financial burdens on top of hurting your credit rather than building it. 


A small loan without extra burdens can really make a difference for having a bit of wiggle room or emergency finances with the added benefit of building your credit. These types of loans offer greater repayment flexibility along with much lower APR and interest rates. 


With a smaller loan, you have peace of mind that you haven’t taken on more debt than you can handle, which will help with working monthly payments into your budget. Then, you’ll be able to build your credit by making on-time payments, which is the heaviest factor in credit score calculation.


During certain times of the year, 7 17 Credit Union offers a $1,000 specialized loan to individuals who have been members for three months with a minimum direct deposit amount. The loan doesn’t require a credit check or collateral. This specialized loan allows members to build up their credit with on-time bill payments while offering financial flexibility without exorbitant APR and interest. Contact your local credit union for details on loan options.


Looking to build your credit?

Small loans can make a large difference in building your credit while providing some extra room in your budget. Apply for a loan from 7 17 Credit Union today

Not a member yet? Become a member today to take advantage of our member benefits, including the next specialized loan application window, a variety of checking accounts and more!