“I take out a loan today and then repay it as quickly as possible so that I can get rid of the burden quickly.” This is the idea of many borrowers who urgently need money but feel bad about borrowing. Industry experts warn of the impending overload due to incorrectly set terms and credit rates. In many cases this also applies to mini loan monthly installments. In general, borrowers have to be aware of one thing: every financing burden the household budget. Even if I get a mini loan from a private person, the lender wants to get his loan back at some point. However, it is of little use to both sides of borrowing if mini-monthly rates are set too high, so that financial problems may even occur repeatedly during the repayment period.
Problems during the repayment lead to additional costs
For banks, financing portals on the Internet and private donors, this means unexpectedly longer waiting times before the entire loan amount is repaid. In the case of loans from banks, credit brokerage portals and credit platforms, defaults in the payment of the monthly mini loan installments also trigger bureaucratic processes. These include the following:
- Delivery of payment reminders to borrowers
- Reminders (one to three, depending on the provider)
- early demand for complete repayment
- Notification of loan default to Credit Bureau and other credit agencies
What, above all, involves some effort for the donors in relation to incorrectly set-up mini loan monthly installments, can have far worse consequences for customers in the case of a mini loan for employees, the self-employed and other target groups.
Additional costs are a nuisance, especially with short terms
You pay extra fees for reminders or possible return debits if the reference account is insufficiently covered. Such additional costs basically increase the average interest paid on mini loans significantly. Because already for the first letter to warn about missing installments, fees of 5 to 15 USD are due at many credit platforms and banks. If mini-monthly installments are not transferred several times (on time) or if the bank holding the account makes chargebacks, there will be a risk of termination after two or three missing installments. This not only leads to early termination of the contract on the part of the lender.
Do not underestimate the possible consequences of failures
Private bankruptcy may even be threatened if there is a corresponding previous charge. A negative Credit Bureau entry will always arise. And this entry can have many effects in the future. You may not get a new loan if you need it within the coming months or years. Or you may encounter rejection when applying for mobile tariffs, perhaps even when entering into a rental agreement, because landlords and providers shy away from the risk of a failure due to Credit Bureau’s history.
In most cases, entries even threaten loans that are actually granted in a “shop-neutral” manner. This is a mini loan without Credit Bureau. German banks must always check their creditworthiness. However, the mini loan is often not reported to Credit Bureau – precisely because the financing amounts are so low. If customers can no longer service the claims, the vast majority of financiers will report to one or more credit agencies. As a rule, this will be said Credit Bureau.
Can I correct rates when income changes?
It is easy to explain why we are rearing the horse up from behind and talking about the risks at first: Even monthly mini loan installments should be carefully defined and budgeted appropriately. After all, you don’t take up such funding for no reason. The majority of all customers who need loans with a financing framework of between 50 and a maximum of 3,000 USD have problems with smaller unscheduled extra expenses to pay higher credit rates as agreed. As with any loan, the monthly installment for mini loans must of course also be paid smoothly throughout the term. Contract is contract.
Our tip → In case of problems, do not wait until problems become acute!
If complications do arise, temporary deferrals or adjustments to the rate can be agreed with the customer service department of the lenders. Some platforms already mention such options in the product information. In other cases, it is worth contacting in the event of impending loss of payments in order to find a goodwill arrangement. Because there is no question that successful repayment is also important to credit providers. If only because the scheduled repayment causes the least effort. The earlier borrowers report expected repayment problems, the more likely a good solution is before a payment fails.
Preferred processing and payment = a cost factor?
One reason why some borrowers would particularly like to pay higher monthly mini loan rates is the rather high interest rates for mini loans. Many laypeople believe that short repayment phases keep the total costs within limits. The mini loan comparison shows that the conditions on the market are in some cases far above average. In some cases, annual calculations result in effective annual interest rates of more than 100 percent. This happens, for example, when borrowers order a particularly quick mini loan payment in some places. For some offers, such as the “Xpresscredit” format from Ferratum Bank, high fees are charged for express payments on the day of approval.
In the case mentioned, depending on the amount of the loan and the mini loan, these are between around 30 and almost 300 USD. If these prices are included in the annual interest rate, the bottom line is that the service providers generate considerable sales. Therefore, credit specialists advise you to read the additional costs and services of the providers in detail.
Installments must be affordable under all circumstances
Borrowers could now come up with the idea of reducing their costs through shorter terms and correspondingly higher mini loan monthly installments. And of course, by shortening the repayment phase, I can reduce loan expenditure. Is this really worth it with terms of at most 12 months, given the greater risk of default? Every borrower has to answer this question himself. However, be warned here of the danger of being overwhelmed and the economic consequences mentioned.
Which mini loan monthly installments suit me?
In the first step, borrowers should get an overview of their own fixed costs. Experience shows that many consumers are not even aware of their own running costs. Most of the cost items, like the mini loan monthly installments, are debited automatically by direct debit. Complete control of spending is often left behind. Some of the fixed expenses are:
- Insurance contributions (from household items to car insurance)
- Rent (plus ancillary rental costs such as electricity and gas)
- Fixed network, – cellular, internet and TV costs
- Contributions to private pensions
- Contributions for club memberships or regular donations
- Pocket money for the offspring
- Purchase of (Christmas) gifts
- Bridging if employer/client pays too late
Especially with a mini loan for the self-employed, sufficient time should be invested in planning the borrowing. Not only because of the often irregular income. Taxes and contributions for health, pension and long-term care insurance must also be considered separately here. After all, they are not taken over by the employer, but have to be paid by yourself. Tax claims in particular are sometimes forgotten when calculating the budget for sensible mini loan monthly installments if applicants work on a freelance or self-employed basis.
Compare the fees for the desired term exactly
On the basis of very clear guidelines, many providers precisely state the amount of credit rates per month on their platforms. In the case of low-priced offers with loan amounts of up to 300 USD, mini loan monthly installments with a term of six months are around 50 USD plus the interest on the respective mini loan. In view of the market interest rates mentioned, the surcharge on the actual pro rata repayment amount only moves to 5 to 10 USD. With microfinance from 50 to 100 USD, customers often only pay a cent amount as interest. However, such data must not be misinterpreted. In the example of the Cashper platform, for example, you pay a total of 100.31 USD (as of 11/2018) for a loan amount of 100 USD with a term of 15 days, for 30 days the total costs are 100.63 USD. The agreement for repayment in several installments with a term of 60 days, however, is charged an additional fee called “2-installment option”.
A monthly rate increases the financing costs for this product by currently 40 USD. Borrowers encounter such special features not only at the provider mentioned. Consumers also pay more for other offers if the repayment phase is divided into several monthly installments per mini loan. Therefore, customers do not only have to pay attention to the interest for mini loan models and the amount of the loan. Once again it becomes obvious that additional costs must always be kept in mind. A faster repayment can have a positive impact on the total financing costs.
As I said:
This is about details that should be questioned before contracts are finalized. Otherwise, only the 14-day right of withdrawal, which the German legislature provides for domestic award, remains to be asserted.
Caution: → With terms of 7 to 14 days, the right of withdrawal can be canceled. Foreign providers in particular are often not bound to the German legal situation anyway.
Some providers explicitly stipulate terms and rates
However, if the same annual interest rate is calculated for all offered mini loan terms, you can plan without budget to pay the monthly installments that match your income. There are basically two variants:
Borrowers themselves specify which installments they want to pay
Donors prescribe which monthly installment is suitable for which term
Unlike more multi-year loans, as a borrower you are sometimes less flexible in determining.