Why is it okay to take small loans?

When you’re buying a house, the lender only cares whether you can pay for it in the future. If you’ve got a good income and solid assets, they’ll lend to you regardless of your credit history. But it’s not as easy if you want to buy something smaller—a car or an appliance. Many small-ticket lenders won’t issue loans if they think paying them back will be difficult for you. Some lenders may even refuse applicants with bad credit or no credit. So, why is it okay to take a bad credit small loan, and what can someone do if they find themselves in this situation?

Don’t end up in a negative equity situation.

When most people buy a car, they’re cautious about car loans and the financing process because they want to avoid ending up in a negative equity situation. Negative equity is when you owe more on your car than it is worth. For example, if you bought a new car for $30,000 and now the value of that vehicle has fallen to $20,000 due to depreciation over time or other factors (such as wear), then your vehicle has -$10,000 (-30K – 20K) in negative equity.

Suppose you need to sell the car but still owe money on it (or some other reason for not selling it). In that case, this could be problematic for repaying any outstanding debt—in which case you’d have a hard time getting rid of your old ride even though its value has decreased below what’s owed on it.

You may be able to afford the more significant expenses

A person with bad credit may be able to afford the larger expenses that come with owning a home on their own. You can’t buy a house without a mortgage, and you can’t buy a car without a loan. People take many things for granted, require loans or some form of borrowing. For example:

  • Most people can only afford college with student loans.
  • Paying for your wedding ring with cash alone (even if you have enough money to purchase it) is not feasible.
  • You can only afford to buy a home by taking out a mortgage from your current bank or another financial institution that specializes in providing mortgages to buyers who don’t have perfect credit scores.

Certain consumer protections are available.

When you need a house loan, certain consumer protections are in place that ensure you’re treated fairly. These include:

  • Bad credit? No problem. You can still get a loan with a bad credit small loan.
  • No credit score at all? No problem! You can still get a loan with no credit score at all.
  • No money down required? No problem! You can still get a loan with no money down needed—and even if you do have some cash on hand, it won’t affect your chances of getting approved for the loan or how much you’re approved for if they do require some money upfront (but again, they may not).
  • Low-interest rates? Yup! The vast majority of mortgages come with low-interest rates and affordable monthly payments so that homeowners don’t have to worry about paying off their loans quickly until they sell their homes or refinance them down the road when they’re ready to take advantage of lower rates offered by other lenders at that time.

Bad credit or no credit, have a plan.

It’s okay to take out a small loan if you have a plan. You can still buy a house and get a car, even with bad credit or no credit. The same goes for taking out small loans. You can buy groceries, pay your utilities and internet bills, get plane tickets or take out cash at an ATM without having good credit. As long as you have a plan—and follow through on it—it’s excellent to use your hard-earned money in whatever way makes sense for you.