Interest for mini loans – here, too, the comparison is worthwhile
Small loan amount, low interest rate? In the case of classic bank loans, this principle is, in a way, the golden rule. But here already there is the well-known exception to the rule. The comparison of providers also shows that the interest on mini-loans shows that there can be quite clear differences between the conditions of different banks and other financial service providers.
By the way: In reality, banks rarely offer macro and micro loans. Traditional credit institutions mostly cite the reason for waiving the fact that short-term borrowing does not generate sufficiently high returns – precisely because the financing usually only lasts a few weeks. The pure return for individual loans is low.
The service providers on the Internet, on the other hand, tend to heed the motto “the mass does it” and rely on the fact that a large number of borrowers ultimately generate high sales.
Special interest for mini loans is not suitable for everyone
As with normal loans from the banking world, interest on mini loans is an individual product design of the respective provider. If you look at the current advertisements for small loans from the large brokerage portals, this gives the impression that customers can regularly secure loans with negative interest rates. This is not the case, instead the offers are special offers. Nevertheless, there are isolated advertising activities in which consumers have to pay back less than the previous payment amount after borrowing. Such services are limited in time and can only be called up to a certain amount. It is common, for example, that the particularly favorable conditions apply as interest for the mini loan only if the financing amount is exactly USD 1,000.
For what purpose is the mini loan taken out?
Such a loan amount just falls into the area of mini-loans, the upper limit of which experts usually put at around 1,500 USD (rarely more). With larger sums one speaks of small loans. In a direct comparison, however, it is striking that the cheap online loans differ significantly in terms of terms from mini loans. Because the repayment of short-term loans is typically set for a period of 14 days to a maximum of three months. Small bank loans, on the other hand, normally run for at least 12 months or more. Consumers who need a loan for relatively small three-digit amounts could hardly pay off loans with a volume of 1,000 USD and more in a few weeks or months – exceptions also confirm the rule here.
Anyone who only has to wait a little longer for the salary to arrive in their bank account will soon be liquid again. Low-income earners who only have a small amount of money on their accounts cannot even finance monthly mini-payments of USD 200 or more. So much for the distinction between small, macro and mini loans.
Service providers such as Fine Bank and others who give mini credit to self-employed or salaried employees have a margin of up to 3,000 USD. However, with a very short term! So consider carefully whether you can “afford” the burden!
Ancillary credit costs should not be incurred at interest rates
It is generally worth taking a close look at and comparing interest rates for mini loan models. One of the reasons for this is that not every borrower pays interest in the strict sense. Occasionally, the market also has offers for which a basic fixed fee is charged. With a financing sum of 100 USD, this can be, for example, five to six USD – if the desired amount increases, the fee is correspondingly higher. In any case, the range of mini-loan interest rates could not be wider, as current interest rate comparisons reveal. Borrowers should note in particular that operators of the platforms on the Internet do not charge any additional fees for processing the application or managing the credit account in addition to interest for mini-credit ventures.
Such a practice is not serious; portals with headquarters outside of Germany may well incur additional ancillary credit costs . The mini loan interest rate is only one side of the coin. Consumers should also pay attention to commissions before signing a mini loan contract.
Two types of interest settlement for mini loan products
At this point, some potential borrowers find the comparison relatively difficult. Because, unlike in the classic banking industry, financial service providers usually have no obligation to state the annual percentage rate. The German Banking Act has been providing the annual effective interest rate within the consumer credit directive as an objective, indispensable comparison criterion for some years. For their part, the independent service providers work with various representations of the conditions:
Model 1: → Name the effective annual interest rate and the borrowing rate
Model 2: → naming fixed sums for the loan amount X with the term Y
These different approaches do not necessarily make it easier for laypersons to find the best interest on mini loans. In some cases, the exact details of debit interest and the mostly bound effective annual interest can only be found in small print on the websites of the providers.
Mini loan interest must apply throughout the term
Important: The term “bound” or “fixed” is common. So borrowers know that the agreed at the beginning have, even if new customers now have to pay different interest for mini loan offers on the platform in question. In the current comparison, the interest rates are quite impressive. Interest rates are currently in the lower double-digit range on brokerage portals such as Best Bank – mini-loans for employees and other target groups from USD 1,000 are brokered there. Because of the significantly longer terms, this data should not be misinterpreted. To stay with the example of Fine Bank: The fixed effective interest rate is currently just under 14 percent. However, the higher annual interest rates for mini loans of this type are explained by the extremely short term of the loan.
Mini loan interest is often referred to as the sum and percentage
With a loan amount of USD 1,000 and a term of 30 days, customers pay the equivalent of USD 11.58 for the loan. A cost factor to be borne if the need is unexpectedly acute. However, it should be briefly referred to here again: Those who do not have any reserves themselves and need to keep credit rates low will be put to the test by these low financing costs. If the account is empty and the mini loan is not only used to bridge the gap, but also to pay off debts (e.g. payment of open installments for normal consumer credit) or to finance non-deferrable purchases, the repayment of the micro loan must be organized extremely precisely. And of course, the interest on the mini loan, like the actual installment, must be paid regularly. If the installments are due at particularly short intervals and not just monthly, as is usual with a number of loans in this category, customers must also be aware of these requirements.
The fact that many service providers give flat-rate amounts in USD as well as mini-loan interest in percent can be described as particularly customer-friendly. This is how you can quickly and transparently find out the total credit costs that arise, without having to search for the necessary data on the providers’ platforms.
Even if the loan interest rate for mini-loans on some portals is well above the 10% mark and thus more at the level of a typical credit card with a credit line – with such a short term, this is less important than with a small loan with a multi-year term. Because banks collect cash there in the long term. Mini loan providers, on the other hand, only receive the interest for mini loan models for a maximum of six loan installments.
Interest rate is just a feature of mini loans
Apart from that, there are also brands in the credit market with services such as Agree Bank – an offer from the Maltese Across Lender – where borrowers can call up loans at significantly less than ten percent. At least as important as the amount of the interest rate for the short-term loan is the selection of the terms and primarily the credit line, which is defined depending on the creditworthiness after a successful Credit Bureau query (or checks on requests from other credit agencies) and the income of the applicants . Agree Bank, for example, names a framework of 100 USD and a maximum of 600 USD, with a maximum term of 60 days. If I now need more than this maximum, I, as a consumer who needs it, will not be able to benefit from the low interest rates for the mini loan. In other cases, the personal situation is an exclusion criterion in the course of the application review. Not every provider grants a mini loan for the unemployed, while for other companies the application for a mini loan for trainees is more likely to be rejected.
Most of the time, the usual questions are decisive for the approval. These are:
- Can interested parties show the minimum income required (from approx. 500 USD / month)?
- What is the result of the credit check?
- Do applicants have a German place of residence and a new bank account?
It is usually these three aspects that determine whether the lender decides whether or not. Mini loans for the self-employed can be an exception. The reason for this is that on the one hand the definition of the term can be something else. A few hundred USD are not very helpful for company founders to realize a business idea. Entry sums of 5,000 USD are sometimes the lower limit for a small loan. Anyone applying for a mini loan for the self-employed for commercial purposes should be prepared for the fact that financiers may want to view information and documents relating to precisely this purpose (perhaps in the form of a business plan). The interest for mini-loan variants of this type, however, falls on average in a comparable way to that for private borrowers.
Interest on mini loans – we summarize
Anyone who deals with the mini loan interest in detail must know the complete financing package and take it into account when planning. If a loan fulfills the wishes regarding the interest rate, while the available credit line is insufficient or the terms are too tight, prospective buyers should rather look for a better alternative. Financing professionals also recommend that, even with a small loan, you prefer to act a little longer. This is how the mini loan monthly installments can be kept low. The bottom line is that the overall interest rate for the mini loan will only be of limited importance. Usually, it is only a few USD if the loan amounts for the short-term loans are not divided into one, but two or even three installments.
Anyone who makes short deadlines, as a customer runs the risk of falling into the debt trap, not just for the mini loan for Best bank recipients. It is better to draw up an accurate contract over a longer period of time if the regular cash receipts are rather manageable.