Mini loan and short term loan – all one and the same? A question that seems justified. Because these types of credit are not really common until now. It is also not easy to find clear definitions of these two types of loans. Thus, not infrequently, the microcredit is equated with the mini loan and then somehow mixed with the microcredit. This quickly gives the impression that all of these terms are basically just “old wine” in “new hoses” titled. So what applies to the mini loan applies equally to the short-term loan.
What does short-term credit actually mean? Sure – you get a short-term loan for a “short time”. But how is “short time” defined? 5 days, 15 days, 30 days, 60 days or even longer? Maybe even completely individual? Just as a credit customer just needs it? The fact is, there are simply no really common definitions of these types of loans. Basically, each provider of a mini loan or short term loan sets its own detail definition of the two types of loans. Exactly as needed for the practical implementation of your own business model.
Mini loan and short term credit – the basic understanding
One, however, all have credit in common and this also applies to the mini loan and the short-term loan. Because these loans are loans like everyone else. This means that a financial institution awards a certain amount of binding conditions over a defined term to a borrower. In addition, the legal guidelines from the credit system also apply to a mini loan or short-term loan.
The general differences to traditional credit
If you have not dealt with the matter of mini credit and short-term credit until now, you may want to briefly explain the most important differences between these two types of loan compared to conventional installment credit.
Difference characteristic number 1 in the case of mini credit / short-term credit is the fact that the loan must be repaid to the lender after the expiry of the agreed repayment term in an amount plus accrued interest. Whether this happens after 5 days or even after 60 days depends on the mini credit provider.
Difference characteristic number 2 is the fact that with the mini-loans the interest rates are clearly higher in comparison to an on-line credit or also the traditional branch loan. Although some mini loan providers have lately lowered the interest rate on their own loan offer significantly, but the interest rate differential on the individual mini loan offers is still immense.
What are the loan rates for this form of credit?
The effective annual mini-credit interest rates of the loans offered here vary between 7.95% and 13.90% . This means that you would have to repay purely computationally with a borrowing of 100 € and a term of 1 year at 7.95% effective annual interest at the end of the year 107.95 €. However, as short-term loans and loans with terms of less than one year are involved, interest costs are even lower. In plain language, the factor “interest costs” in a mini loan and short-term credit actually hardly matters. Even if this is not a small number of so-called experts in the credit market looks very different. The fact is that a realistic estimate of the interest cost of a short-term loan looks like this:
- Mini loan over 300 €
- Duration 30 days
- Interest rate eff. pa = 7.95% at the cheapest provider Viloan
brings as result only once 1.89 euro as interest burden! Who dubs such an amount as high, should once again lead the meaning and purpose of a short-term credit to heart. But the simple comparison with an unregulated and often much more expensive credit line could be helpful here.
The mini loan: More expensive than a conventional installment loan?
A question that can not be answered with a clear “yes” let alone a “no” . The reason for this lies in a simple rule in the credit system. It is entirely up to the banks to decide whether or not to link a loan with regard to its interest rate structure to the creditworthiness of a credit customer. This is called credit-dependent or even credit-independent interest rate . In simple terms, the more burdensome the creditworthiness of a customer is, the higher the interest rate on a loan can be. Which can often be synonymous with having to accept an interest rate of 8%, 9% and more for a “normal” installment loan. If, on the other hand, one deviates from a loan that does not use a credit rating-dependent interest rate, it can happen that even the smallest private credit characteristics lead to a rejection of the loan application. So the question after “What is more expensive?” Can only be answered individually.
One thing is certain: Due to the short maturity of a mini loan and a short-term loan, the interest factor is fortunately hardly significant.
Cost mini credit vs. Cost of Posting Credit: What’s Better?
Again, this is not a question that can be answered flat with a “yes” or “no”. Again, the answer ultimately lies in the interest rate that is offered to you in the case of a credit line. At present, the reality is that it opens a range of 0 percent to well over 14 percent. This results in the following situation: If the interest rate for a credit line at the own bank below 7.95%, then the Dispo is clearly the better choice. On the other hand, if the discount rate is significantly higher than the 7.95% demanded by Viloan, then the Viloan mini loan is clearly the wiser choice. In this respect, the decision is always to look closely at the interest rate for the credit line.
Another point to keep in mind is the maximum loan amount. In the mini loan, the maximum loan amount is usually reached at 600 €. In contrast, the credit line is often 2-3 times the monthly incoming salary. So when it comes to bridging a major financial bottleneck (more than € 600), the credit line has the advantage. However, it must be clearly stated that a cheap online loan would be the better alternative compared to the credit line here.
What role does private credit play in mini-credit as well as in terms of credit?
Last but not least, the topic of private credit should also be addressed. It can be said without a doubt that with a burdened private credit the credit line is a utopia. Consequently, the slightest flaw in your own credit rating means that you do not receive a credit line. Even if, then with an interest rate well over 10%. Where the mini loan the private credit plays a minor role in most mini loan providers. Consequently, in most cases, a short-term loan is also awarded to a private credit with a light to medium burden. From the point of view, therefore, a clear “pro” for the mini loan and short-term loan
When is a mini loan / short term loan in question?
A mini-loan is basically always in question if the following points are given:
- Alternative financial reserves are not available
- your own credit line has an interest rate higher 8 percent per annum
- There is no need to borrow more than 600 €
- Credit is not available
- the own private credit has slight negative characteristics
In addition, the mini loan is considered a credit alternative, if it is clear that the use of one’s own disbursement credit is not always associated with a regular repayment. The mini loan does not offer the possibility of postponing the eradication. In this respect, a loose repayment mentality can NOT lead to a continuous debt build-up in this type of loan. However, it also follows that a mini loan should only be taken if it is certain that it will be repayable on the due date as well as interest.
So fast and easy it goes to the mini-loan and short-term loan
The requirement of a mini-credit / short-term loan is a simple, in a few steps feasible process. How easy it is to receive a mini loan is shown in our infographic