The amount up to which loans are referred to as small loans is not binding and is therefore based on the practices of the individual banks. Most consumers perceive the border between a small loan and a larger loan amount to be between three thousand and five thousand USD. However, some credit institutions also refer to any non-earmarked loan, regardless of the loan amount, as a small loan and thus use the term as a synonym for a consumer loan.
Interest on a small loan
The interest to be paid is usually higher for non-earmarked small loans compared to the loans to be paid for earmarked loans. The main reason is that in the case of earmarked loans such as the real estate loan or the new car loan, the financed item serves as additional credit security. Compared to these loans, small loans have higher default risks for the lender due to the lower level of collateral.
However, applying for a small loan is much easier for the borrower than for earmarked loans, since he does not have to provide any evidence of the intended use of money. A prerequisite for the granting of a small loan is a good credit rating, which the bank primarily understands to be sufficient income to repay the loan.
Weak negative characteristics in the Credit Bureau information do not necessarily prevent the approval of a small loan, depending on the bank and the loan amount requested. If the bank rejects a loan application, the borrower can in many cases make an amended application with a longer term and receives a commitment due to the lower monthly installments thanks to the extension of the term.
Compare the cost of a small loan
In view of the different costs for small loans depending on the bank, it is imperative to compare the terms of different providers. The most important criterion for choosing a specific loan offer is the effective annual interest rate, since only this contains all the costs associated with taking out small loans. In addition to the interest rate, the offers for small loans from different banks differ in the flexibility of repayment.
It is advantageous for the borrower if he can pay off the small loan prematurely in whole or in part free of charge or if he can suspend the installment if necessary. Banks also differ significantly with regard to the duration of loan processing. If the loan applied for is a small amount, the cheap borrowing via a platform for arranging personal loans is ideal. Small loans are often given cheaply on the corresponding pages compared to banks.
In contrast to the method of lending by banks, a small loan applied for via a corresponding platform requires the purpose to be stated, since private lenders see this as the basis for deciding on their lending. In some cases, those who cannot apply for a small loan from a bank for economic reasons will receive a cheap loan from the office. This applies especially to recipients of unemployment benefit II if they cannot pay for urgently needed purchases from normal support.