Small loans: when is it worth it?

Even if many a writer of the online media world does not want to or cannot admit it and does not tire of pointing out the supposed dangers of a small loan or mini loan. Small loans or mini loans are in vogue and are enjoying increasing popularity among German citizens. After all, according to numerous analyzes and statistics on the German credit market, the results of which match, with a market share of 41%, almost every second loan taken out in Germany is a small loan. In other words, a loan whose loan amount moves below or only slightly above the financial mark of $ 1,000. It is precisely this and a few other factors and features that make small loans or mini loans different from classic installment loans.

Who actually grants such small loans?

If you look at the credit offers of most banks, you will find that they usually only start at a sum of $ 3,000. This means that the usual retail banks and savings banks do not even grant such small loans in the first place, but refer directly to the expensive overdraft facility.

The reason for this is that such a loan type simply does not pay off for banks due to its cost-intensive structures. Consequently, these mini loans with an average loan amount of $ 1,500 are most likely to be found at online banks and specialized mini loan providers.

Interest costs for small loans

As with any other loan, the interest rate for a small loan also varies from provider to provider. For example, some financial institutions advertise an interest rate for this type of loan, which starts at 4.9% pa – even regardless of credit rating. In the retail sector, small loans are often even offered at 0% interest, provided the loan is to be used to purchase a consumer good from the retailer.

In this case, such a loan is also known as zero percent financing. But especially with these offers, special attention must be paid. Because this loan is not always really free. Often, “agency fees” or “bank statement fees” add up to the actual loan costs. This can often drive up the effective interest rate sensitively!

Credit insurance for a small loan? Nonsensical and unnecessary!

Loans of all kinds, including a “small loan”, are often offered insurance against non-payment in the event of unemployment, disability, or death. But especially with a small loan with a manageable term, such insurance is in most cases unnecessary. You give only one party a real advantage – namely the intermediary bank in the form of a handsome commission.

Our conclusion: When is a small loan worthwhile as well as recommended?

1. If the loan interest rate for such a loan plus all extra costs is significantly lower than the overdraft loan provided by the house bank.

2. If the runtime makes sense! If the loan amount can be repaid within a few weeks, the loan should present itself with exactly this option with regard to its repayment options. In this case, the short-term loan or mini loan is optimal.

3. If generally smaller sums (under $ 1,500) are to be used at low interest rates with fixed terms and repayment terms over a shorter period.