What are mini-loans?
Mini loans or short-term loans are still largely new on the German financial market. The first loans of this kind came on the market in Germany in 2010. Since 2015, Targobank has also been the first major bank in the German microcredit sector, otherwise such loans can usually be concluded via smaller start-ups.
As a rule, the mini-credits are not granted for more than 30 or 60 days and are available in a manageable credit line of up to 1,500 euros. The possible sum for such a micro-credit starts with some providers already with 50 euro.
Mini loans in a country comparison
A look abroad can show that the model of leasing short-term loans can hide a billion-dollar business. In the US or the UK, such loans are far more common than here and have been prevalent for many years. Short-term loans totaling £ 2 billion were granted to the UK market in 2013, compared to US $ 46 billion in 2016. Due in part to horrendous interest rates or processing fees, borrowers incur comparatively high additional costs. This is mainly due to the loose provisions, which allow relatively free hand on the additional fees on the credit markets in other countries. Then the relationship between supply and demand largely determines the prices of such a payday loan loan.
In the UK, for example, you may be charged approximately 30-40% extra for a short-term borrowed £ 100. As a rule, you have to pay off the mini loan, along with its ancillary costs, within one month. Extrapolated to the APR, so quickly interest in the four-digit percentage range – who would pay something like this? However, the financial markets of other countries are not easily comparable to ours, which is monitored by the federation. Inadequate usurious interest rates are to be regarded as immoral by § 136 of the Civil Code and therefore ineffective. Last but not least, the Germans are considered to be more economical and considerate when it comes to dealing with loans. In Germany, for example, there is a downward trend in the use of smaller credit lines. The demand for loans under 1,000 euros is currently decreasing significantly.
Three important criticisms of the mini loan
A mini loan lures with comparatively fast money on favorable conditions and without extensive credit bureau examination. However, on closer inspection, all three aspects appear in a different light.
❶ The time factor
If you depend on such a loan, you will probably need fast money. Short-term credits are designed precisely for this promise: You now receive a manageable amount of money to bridge the gap, which you can easily repay on the next salary payment. However, most vendors will have to wait several days or even up to 2 weeks for their money.
Of course, it is feasible to get within 24 hours to the desired loan amount. However, this is associated with very high costs: only an express payment costs in our samples (July 2019) up to 379 euros (at Ferratum Money). With such a small amount of credit, that is absolute madness. And let’s be honest: anyone who applies for a mini loan needs the money immediately and is in need.
❷ The debt factor
If your finances are so tightly sewn that you can not settle an open account out of your reserves, behind a short-term loan hides a potential debt trap . Like any other lender, microcredit providers reimburse their money within a set timeframe. In our case we speak of one or a maximum of two months. If you miss this deadline, because there is not enough money to repay your debt, there will be new costs. Default surcharges or dunning fees further increase costs.
In the worst case, you will then be forced to serve your first mini-loan through a second. This means that you are in a vicious circle. Generally, when you close your credit, most providers allow you to pay 2 installments. However, this is also associated with an extra charge. The provider “Ferratum Money” are simply between 79 and 229 euros extra.
So if you end up so miscalculated that you are moving from one short-term loan to another, you’re trapped. Then you are stuck in a debt spiral, which results in addition to the liability of the actual loan, especially from the additional costs.
❸ Your credit bureau rating
With the exception of cash loan, each of the mini-credit providers listed here rates their credit rating, inter alia, via the credit bureau score. In return, of course, this means that the credit bureau is informed about your mini loan and the score suffers – especially in a late payment. Think about what you might need a clean credit bureau for in the future. This can negatively affect further loans in the future or even a lease, a mobile phone contract or a financing of electrical goods, furniture or the like.
Almost every mini loan will also adversely affect your future credit rating. Credit providers, such as cash loan, who treat their loan request credit bureau-neutral, attach more importance to their financial circumstances. If you can not show a contract of employment, you will have bad cards.
These are the alternatives to mini-credit
Before you decide on a mini loan, go through our alternatives. Surely there is a better way for you too.
The classic installment loan
The conventional loan is the first alternative to a mini loan. If you compare the terms of a relatively small installment loan, which you can pay off over 12 months, with those of a mini loan, you will get away much better.
Ask friends and relatives
Granted, it will cost you more, but it’s well worth it for you. Before you choose a short-term loan, you may want to ask your family or friends for help. We never talk about more than 1,500 euros for short-term loans. However, you should by no means fail to disappoint the confidence invested in you.
If there are acute bottlenecks, you can also ask your employer if he can not give you a salary advance. That too is certainly easier said than done, but better than a debt trap.
Talk to your creditors
If you can not afford to pay a vital bill at the moment, this is one of the main reasons for choosing a mini loan. It is usually possible to find compromises from the online retailer to the garage to the small craftsman. A possible dunning procedure or other inconvenience due to financial bottlenecks can be prevented by postponement.
Before you resort to a mini loan, so you should also explore this option. In dialogue, try to persuade the biller to defer his claims. For this you can agree on a later, but realistic payment term or offer your creditors a installment payment. By describing your situation in a rational way and then also keeping agreements, you can probably count on understanding in most cases and also avert the need for a mini-credit.