Small credit as a rip-off or useful for consumers? The facts!
Many households are familiar with the problem: Unexpected events such as a car repair or the failure of an electrical device are on the horizon and entail expensive costs. Often there is not enough money, but it is hardly possible to do without a vehicle, washing machine etc.
A small loan of up to 3,000 dollars appears to be a sensible option to solve the financial problem at short notice and then repay the loan over a short period of time. But how worthwhile are loan really for consumers? In the following, you will get to know this special form of credit better with its advantages and disadvantages in order to help you decide for or against taking out a loan.
What distinguishes a small loan?
A small loan starts at just a few hundred dollars and ranges up to 3,000 dollars. As a rule, they are allocated without a specific purpose and are aimed at private individuals who want to cover everyday costs with a loan. In addition to repairs and new purchases, this can also include financing a holiday or your wedding.
Compared to conventional loans, the small loan is characterized by the low loan amount, short terms and a manageable loan interest. However, the conditions continue to depend on the individual creditworthiness, even if the risk of default by the lender is lower due to the manageable loan amount.
Conclusion and repayment – that is important to note
A factual and mathematical comparison is also worthwhile for small loans in order to find an individually suitable offer. The “APR” factor remains important , but has less of an impact than a five- or six-figure installment loan. Due to the small loan amount for small loans, deviations in the interest rate have absolutely no significant impact, which is why you can pay more attention to other conditions such as term, special conditions and service provided by the lender.
The interest on a small loan can quickly become expensive – calculating and comparing is essential.
In contrast to classic loans, approval is comparatively quick . This is also related to the lower risk of the lender, so that the review of the loan application is usually processed promptly. An appropriate credit rating is still necessary for the guarantee and good credit conditions, but it is slightly less than for a large loan. Online financial institutions such as the ones mentioned above accelerate the process of loan brokerage even more. As an applicant, you actively contribute to fast processing by preparing proof of income and similar documents at an early stage and submitting them by post or online.
The repayment phase is short, and two to six months are not uncommon, depending on the amount of the loan. Whether special repayments are possible in this period, for example to repay the balance in one fell swoop, depends on the respective loan offer. As a rule, the demand for residual debt insurance is waived, again due to the manageable loan amount.
The advantages of loan at a glance
- Processing: With a positive check of the loan application, it often takes only a few working days until you find the desired loan amount in your checking account.
- Financial framework: Sudden expenditures in the three- or four-digit range can easily be covered with a small loan, without taking the risk of greater debt.
- Overdraft facility compensation: If you have overdrawn your checking account, expensive interest accrues when you use your overdraft facility. The loan terms of a small loan to offset the overdraft are often cheaper.
What are the disadvantages of the small loan?
- Credit check: Every reputable provider continues to check your credit entry. Under certain circumstances, therefore, even with small loan amounts, no loan is granted.
- Loan amount : Every financial institution sets a clear upper limit to the amount up to which a small loan with attractive conditions is available. If it turns out that the desired loan amount is not sufficient, no improvement is possible on the same terms.
- Product selection: As this type of loan is less worthwhile for banks and financial institutions. A comparison is still worthwhile, unfortunately the selection options are manageable.
How can a reputable provider be recognized?
As in the entire credit and finance sector, there are black sheep in small loans. These work with dubious conditions when granting loans or set unusually high loan interest rates that are hardly worthwhile. Laypersons in particular, who are considering a loan for the first time, are overwhelmed by the comparison and in the worst case choose a less reputable provider. The provider should therefore be checked carefully before the loan is taken out.
A reputable platform presents itself in a friendly manner and with extensive information on the Internet. The credit provider offers interested parties and customers alike personal advice and provides a variety of ways to contact them. Feel free to check the availability and pretend to be an interested party without obligation to find out more about the service of the respective provider. Tests and reports on the Internet also give you valuable insights.
Various consumer websites have specialized in letting certified customers have their say in order to show experienced advantages and disadvantages. Your own experience will help other interested parties to decide for or against a certain bank.