Important to small loan
- Limited loan amount
As the name suggests, small loans are small loans. Loan amounts of a maximum of 10,000 euros are still considered small loans.
- Often, collateral is not a must
As the loan amounts are lower, collateral is not always a mandatory requirement. However, additional collateral often favors interest rates – so it is still advisable to specify them.
- Select earmarking
If you have planned a specific purpose for your loan, you should check whether it falls under one of the common uses: You should finance the used car purchase, for example, with a car loan, since the terms are cheaper than without earmarking.
A good part of the business of private banks is the issue of loans. Especially with private customers so-called small loans account for the lion’s share of the business with around 70 percent. But what exactly is a small loan and for what purposes can you use it? And are small loans in essential characteristics, such as interest rates or credit checks, different from regular loans?
Find the right small loan
The term small loan means a loan in which the loan amount paid out does not exceed a certain amount. Where the limit is exactly, however, is not set uniformly, but usually speaking at a payout of 1,000 to 10,000 euros from a small loan. Loans over 10,000 euros are generally no longer included. A credit comparison can help find the right loan.
Since the small loan is a installment loan, here are the following savings tips to reduce costs, as with a higher credit:
- Specify second borrower
In your loan application, specify several borrowers who live with you in a household and have their own income. This will provide you with more collateral and can often lower interest rates.
- Select short term
If your monthly budget allows, you should prefer shorter terms. Although this increases the monthly rate, it generally reduces the period in which you have to pay interest. Especially with small loans, the fast deferral may be possible.
- compare offers
You should definitely compare several offers; For example, you could find lower interest rates for direct banks than for store offers. For example, use our credit comparison.
- To arrange special repayments
Due to the low loan amounts not a must, but very pleasant in case you should have some money left to repay: special repayments.
When it comes to assessing creditworthiness, however, it is no easier for a micro-loan than for a loan with a higher loan amount. Here, too, the bank will require detailed information on your income and your monthly expenses, and a query of the Private credit data is common in a small loan.
The reason for this is quite simple: The bank wants to make sure that the borrower does not financially “lift” the loan and then can not pay the installment. In the worst case, it comes to the bank then namely to a total failure, which understandably want to prevent them as possible. For this reason, in most cases a small loan for the unemployed and other people without regular income is excluded.
However, if a regular income is available and this is sufficient in the opinion of the bank to shoulder the monthly installment, the microcredit is in principle open to anyone, including pensioners, the self-employed and even entrepreneurs. In general, however, the principle also applies to small loans: the worse the credit rating, the higher the interest rate and thus the monthly installments.
Small loan without Private credit
As with other forms of credit, there are also offers for small loans that do without a Private credit query. As a rule, such loans are provided by foreign banks, for which Private credit plays only a minor role. However, this does not mean that the banks do without a credit check – again, you must provide information on your income and current expenses.
In addition, you almost always buy the waiver of the Private credit query with a significantly higher interest rate, so that a small loan without Private credit is only a sensible option, if there is no other way to take out a loan.
Special caution is required for loans in foreign currencies, because not only do you pay a higher interest rate than with a regular loan in Germany, there is also a currency risk. The unfavorable development of the exchange rate can make the loan even more expensive in this case.
Top interest rates in small loan comparison
As with all other loans, you should also carry out a comparison of offers for small loans. The loan calculator from Gandalf can you here be a valuable decision-making tool, because here you just need the key data – Enter and get a comprehensive overview of the offers of the banks – loan amount and term. So you can compare in peace and choose the cheapest loan offer for you.
Step by step to small loan
If you have found a suitable offer for a microcredit, it is up to the application. The process and the required documents do not differ significantly between online application and application in the store.
- revenue and expenditure account
If you have determined the loan amount and offers, you should also create a household bill. With this you calculate the maximum monthly rates for you. So you can restrict the range of offers even further.
As soon as you have the right offer, the application must be completed. Which details you have to give or which documents have to be submitted varies slightly from one bank to another. As a rule, banks demand:
- Current pay slips (last three months) or profit and loss account for self-employed
- Proof of further income or credit obligations
- Duration of employment
- Information on current costs and expenses
- marital status
- Document review and postident
Once your application has been reviewed and your specific interest amount has been determined, you will receive the contract documents from the bank. You must send them back signed. In order to verify your identity, the Postident procedure is additionally necessary.
- loan disbursement
The last step is the payment of the loan. The payment is usually made within the next three to four business days.
Small loan as instant loan
In principle, you can apply for a microcredit as an instant loan. This means that you will receive a confirmation or refusal directly after application. In most cases, however, this commitment is only made without obligation and subject to review of your submitted documents. If this results in the fact that the bank does not see you with sufficient creditworthiness, it can withdraw the commitment again.
Since this review usually takes at least one day, a small loan is usually not paid immediately, ie the same day. In rare cases, however, a payment on the same day is possible under optimal conditions.
Uses for this type of loan
Since small credit is a simple consumer loan, it is usually lent by the banks without earmarking – so the loan amount is at your disposal as a borrower. However, if you want to use the money for certain purposes, such as buying a car or new furniture for your condominium, specifying a purpose may be useful. The bank can reward this information with a slightly lower interest rate. Although it does not have higher security due to the earmarking, it usually rates the risk of default as somewhat lower. Whether it makes sense for you to specify a purpose or not, you should discuss in individual cases with the bank directly.
If you want to use a small loan to buy consumer goods, such as a computer or a washing machine, it often makes sense to include the dealer’s financing offers in the credit comparison. Especially with electronic devices, so-called zero-percent financing is offered by large trading companies, where you pay the regular purchase price in installments over a certain period of time without interest. Of course, no bank can compete with such an offer.
Particularly often, the small loan is used for rescheduling. This means that an existing loan is repaid by the loan amount of the new loan, so that only payments for the new loan are due. This is particularly interesting when interest rates have fallen significantly since the original loan was taken out. In that case, the lower interest payments on the new loan will more than offset the prepayment penalty, effectively saving you interest.
Use as a supplementary loan
Small loans can also be used as a supplementary loan. It is therefore added to a larger loan, such as a renovation loan, a small loan to cover additional costs, for example, for the material.
Whether such a variant makes sense depends ultimately only on the interest costs. If these are lower for the small loan than for a corresponding increase in the loan amount of the main loan, the inclusion of a small loan is recommended, otherwise not. Only if the use of the main credit for the additional costs is excluded by an earmarking, the small loan as a supplementary loan is always in question. An example of this would be a real estate loan, where the ancillary acquisition costs, such as notary and brokerage costs, are often excluded as intended use.
Alternative: Credit by private
Small loans do not always have to be requested from a bank – now there is also the possibility to conclude loan agreements with other individuals over the Internet. This is usually done through brokerage platforms that work with a bank. For legal reasons, a universal bank must be interposed in Germany for this type of loan, which handles the processing of the loan. Some banks also provide direct private loans between their clients. Normally, standardized contract forms are also used here, since in Germany, however, contractual freedom generally applies, so you should read the contract terms very carefully.
Another peculiarity of private loans is that they are often provided by multiple lenders. But since the loans are processed through the universal bank, this has no further consequences for you as a borrower. However, with such a personal loan, it can take a little longer for you to receive the money, as there will only have to be enough financial backers willing to grant you a loan.
In the credit check it depends very much on which platform the lending is handled, but it is usually less strict than the banks. Accordingly, the interest rates for a private loan usually also higher – especially since the placement platform also requires a commission. For this reason, the credit on a private basis is particularly useful when banks are unable to lend money – for example to self-employed individuals, who often find it difficult to obtain credit from a bank because of their often irregular income.