Mini loan – loan format on the one hand and a so-called small loan
Mini loan – financing for “small” needs
There are more than enough triggers for the search for inexpensive financing, as many German consumers can report from their own. Home finance or car loans are just two models with a higher volume. But bank customers don’t always need large sums. Sometimes it’s just a matter of bridging short-term bottlenecks. It is important at this early stage to differentiate between the mini loan format on the one hand and a so-called small loan on the other. From the point of view of the lenders, small loans are mostly loans from a size of around 3,000 to 5,000 USD. Depending on the provider, such amounts are even the minimum. But there are increasingly special service providers who want to supply customers with lower demands.
The products of service providers such as Best Bank, Nice bank or Cream Bank – to name just three – usually have little in common with classic loans. And this fact does not only refer to the financial scope of the mini loans, but above all to the terms of the contracts.
Many providers give customers hope for very low interest rates for mini loans. As always, the information on interest rates should be treated with caution. Due to the short terms and small sums, details of flat-rate borrowing costs can hide the facts. Accurate interest rates are important to ensure comparability. Many mini-credit services tell consumers what their total costs will be over their entire useful life. This is also helpful when comparing loans. Last but not least, the financiers prove to be creative with the possible use and their target groups. In some cases, the mini loan for the unemployed is recommended as a small financial injection, in other cases the mini loan for trainees should be the ideal solution if the training salary arrives late on the account. A mini-loan can also be considered for the self-employed if customers too often exhaust the deadlines after invoicing. Many companies can be a sad song of such difficulties.
Are banks shortlisted for mini loans?
Depending on how providers define the term mini loan, the spectrum of micro and mini loans can also be assigned to various offers from banks. What is important here is simply the lower limit of the financing models. Furthermore, however, “real” mini-loans are generally characterized by the short-term orientation already mentioned. This means: While normal installment loans usually work with terms from 12 months and up to seven or sometimes ten years, even with relatively low loan amounts, the mini loan can also be called up with significantly shorter terms depending on the exact product details. In some cases, borrowers can borrow money for just a few weeks and sometimes a maximum of four weeks.
According to the latest mini loan test results and comparisons, the providers on the market are generally purely online services beyond the normal banking landscape. Few banks address customers with minimal capital requirements, even if there are exceptions. One of the few banks that deliberately uses the term mini-credit is the Best Bank from Bingen am Rhein – it grants loans from 2,500 USD and can thus just be assigned to this area. However, in this case the mini loan terms are atypical and are at least 24 months. There is, however, a real mini loan format from the banking environment. And that from Nice bank AG. There is the so-called “money emergency call” in the amount of 100 or 199 USD and with terms of 30 or 60 days. The converted annual interest rate for the loans is quite high in relation.
Compare interest rates and charges exactly
In principle, however, these products can hardly be compared with normal installment loans. Because if you look at the details of the mini loan providers, the short-term nature of the loans often results in effective interest rates of 70% and more per year. In the case of a long-term installment loan, one would speak of usury, but here it is the often standardized monthly fees for money lending that give rise to such values. If I call up USD 100 via a mini loan and pay USD 106 for redemption at the end of the month, borrowers should understand the total costs rather than the resulting annual effective interest rate as a comparative feature. The converted interest rates are usually somewhere in the area of a overdraft facility or the credit card’s credit limit.
Too much effort, too little return for normal banks?
The reluctance of traditional banks has a good reason, of course. Branch banks in particular usually require higher minimum loan amounts; amounts far below USD 5,000 are simply not profitable. Here, the interest rates would usually have to be so high that the loan offers are no longer worthwhile for consumers with regard to the cost-benefit risk.
Important details about mini loans in the summary:
- low loan amounts → depending on the operator between 50 and max. 3,000 USD
- short terms from two weeks to one year
- unbureaucratic inquiry check
- partly available without credit check (only abroad)
- quick payouts
The small amounts requested for an average mini loan – or the microcredit if it is actually only a few hundred USD – also offer applicants another advantage. The award by the service providers on the market is usually comparatively unbureaucratic and accordingly quick. This also applies to the lead time for the disbursement of funds. A number of platforms advertise with slogans such as “immediate payment” or “24-hour transfer”, and the operators of the credit websites also title their products in many cases as flash credit and quick credit. In the end, how quickly it really takes for funds to be credited to the target account depends on the involvement of the bank involved, in which accounts are kept. With online loans, the processing of transactions is proven to be faster and often on the same working day if the mini loan is applied for early in the day and the check fails in the interest of the customer.
Special case – mini loan without checking the loan agreement
The mini credit without Credit bureau often seems to be the only solution for money worries to pre-charged consumers. The mini-loans with immediate processing and very low loan amounts are demonstrably interesting if other options can only be found with a magnifying glass due to negative entries in the register of the Credit bureau and other credit agencies. But of course every loan has to be repaid. Even if there are good reasons for mini-loans such as the repair of a motor vehicle or an indispensable household appliance: if it is foreseeable that the requirements of the lenders regarding the repayment and the amount of the installment are simply not up to the task, financing from the professional side should be avoided. A bad credit rating does not always reflect the current situation. Sometimes it takes quite a long time for companies to have entry deletions for customers removed. If you know exactly that you can afford the repayment with a short term, there is nothing to be said against the mini loan without Credit bureau.
Mediation portals also issue mini loans
Another option with current Credit bureau debits can often also be the mini-loan from private, for example from the family or from friends or acquaintances. Even if a phrase says that friendship ends with money: Small amounts usually do not represent a serious burden for friendships, especially since the repayment of sums in the range of around 50 to 200 USD can usually be done relatively flexibly. Internet users can also apply for loans “from private to private” (P2P) via special brokerage portals. Fine Bank is one such provider. However, the minimum amounts for these platforms and banks are often in the clearly four-digit USD range, so that providers only deserve mention as alternative mini-loan variants. On the other hand, it should be mentioned that the specialized portals for innovative personal loans are of course also tied to certain conditions.
On the one hand, the creditworthiness check of German service providers is mandatory due to the applicable legal situation, on the other hand, foreign providers themselves often provide for an assessment of the applicant’s creditworthiness based on conscious decisions. In addition, interested parties must know that lending them (in the case of dubious services, perhaps even without successful approval and payment of the funds) can result in certain costs. In the case of a mini loan, for obvious reasons, these are quickly more serious than a normal consumer loan in the range of 5,000 USD.
Mini credit from the boss as another alternative
If the credit requirement is not the result of a lack of payment behavior on the part of the employer, an advance payment from the boss in an emergency can also be a convenient and simple solution. Borrowers should be aware at all costs that prematurely paid salaries will be missing the following month. This is how a vicious cycle can arise. Therefore, mini loans, like any loan, should only be applied for after careful consideration. Preparations should always focus on the urgency of purchases. This is all the more true when it comes to a mini loan for Hartz4 recipients or the unemployed. If the professional situation is not expected to change soon, any financing poses a risk. In the worst case, applicants accept the final insolvency. If you want to use the mini-credit for the unemployed, for example, to finance the driver’s license required for a new job or appropriate clothing for the new job, you are in good hands here and can repay the money after starting work as agreed.
Lower entry hurdles for mini loans increase chances of being awarded
As already discussed above, there are one or two loans that are advertised as mini loans without Credit bureau. If this is the case, the operator is by no means a German bank or a credit institution. The domestic industry must fundamentally question the creditworthiness of its applicants, which happens primarily through the Credit bureau query. But: With a regular income – this can be German State Funding money, unemployment benefit I, Good credit lenders or salary from a mini job in cases of doubt when it comes to the small mini loan amounts – an imperfect credit rating is often accepted.