Microcredit for individuals and companies

Small loans, also called microcredit, are always a time-lending loan, which means that the loan must be repaid within a certain time plus interest. Microcredit was introduced in the 1990s, initially to give poor people in developing and emerging countries the chance to get a loan to start a business.

Small loans for companies and individuals

Small loans for companies and individuals

In the meantime, microloans have also become established in Germany and are in increasing demand. The Microfinance Fund Germany was set up in 2006 to finance the loans. Small loans can only be applied for commercial purposes, i.e. for the establishment or expansion of a trade. The microcredit is the only way for many people to get capital, since it can also be approved if the applicant has no collateral or already has a credit bureau entry and for this reason would not receive a commercial loan from a bank.

In this way, microcredit can help to enable business start-ups and to realize entrepreneurial growth. During the term of the micro loan, the borrower is continuously accompanied and advised by the lender, which is helpful for the borrower and a security for the lender.

The amount of such a loan is between $ 100 and $ 20,000 and is granted by non-governmental organizations and microfinance banks. The loan term is between a few months and a maximum of three years.

Note:
Normally, the amount of the small loan is staggered, which means that the first loan is, for example, $ 5,000, if the repayment runs smoothly and without problems, then a loan can be approved again, this time with a total of up to $ 15,000, for example. So the borrower must first prove its reliability in order to obtain higher capital.

Requirements for small loans:

Requirements for small loans:

Microfinance institutions require different types of collateral, often a guarantee of 50%, sometimes even 100%, has to be provided. The institutes particularly like it when a person from the applicant’s immediate vicinity takes over the guarantee. In addition, a business plan, liquidity planning and a profitability forecast usually have to be submitted.

Promotional banks often offer microloans on better terms. Up to a certain amount, no security is often required or a guarantee is waived.

In some cases, business plans, liquidity planning or profitability forecasts are not absolutely necessary. However, the loan application must be made to the respective development bank via the best bank. The terms of these promotional loans generally amount to a maximum of five years. Compared to microfinance institutions, it is a detour via the best bank, but the application to the development bank can actually be worthwhile in terms of terms and duration.

Info:
The small loan can be repaid with constant monthly installments or a final payment. In addition, you can pay off in full at any time without prepayment penalty. When paying in installments, the monthly repayment amount includes the principal and the interest portion. In the case of the final loan, the entire amount is repaid at the end of the term; only the interest is paid monthly.

Example calculation:

  • Loan amount: $ 10,000
  • Term: 1 year
  • 》 Payment in installments: 11 installments of $ 71.33 (repayment & interest portion)
  • 》 Final loan: 1 installment of $ 10,071.33 (amount & interest last month)

If one decides to apply for such a small loan, one should inform oneself in detail about the current conditions, as well as the advantages and disadvantages of the available microfinance institutes and the different development banks. In this case, a consultant can also be very helpful in finding the most attractive micro-loan.

Differentiation from small loans

Differentiation from small loans

Small loans are loans that have significantly lower loan amounts than loans for real estate or buying a car. As a rule, one speaks of small loans for loan amounts between $ 1,000 and $ 10,000. Loans under $ 1000 are mini loans. The transition is fluid and many financial institutions make no difference between the normal installment loan and the small loan.

Info:
Interest rates are also based on the market for small loans and can be different for each lender. The repayment is made in monthly installments, which are agreed when the contract is concluded. Loan contracts for a small loan have terms of up to approximately 24 months.

Find the best small loan

Find the best small loan

For small loans, the comparison is very important and should be done online. The cheapest providers can be determined here using several comparison computers. It is also important for small loans that the prospective customer obtains written offers from several cheap financial institutions. In some cases, the offers in the comparison calculator are only tempting offers, which, when it becomes concrete, have completely different conditions.

A crucial cost factor for loans with small sums are the administration and processing costs. In most cases, the direct banks are in the top positions here.

Note:
Some traditional banks do not offer low-cost loans because of the high ancillary costs. When comparing, the effective annual interest rate should always be taken. This is the only way to make an optimal comparison. The APR must include all the cost of the loan. When taking out additional credit insurance, everyone must note that these contributions are not included in the annual percentage rate. They have to be added when it comes to the monthly charges.

A special form of getting a small loan is a loan from private individuals. There are corresponding websites on the Internet, so-called “peer-to-peer credit platforms”. Here, the interested party can enter their wishes about the loan amount and the purpose. If you are interested, a private donor will contact you to borrow the money.

What are the preferred groups of people for small loans

What are the preferred groups of people for small loans

The low loan amount and the manageable burden in a short period of time can be a good option for less financially strong people, such as pensioners or students over the age of 18. You can use it to overcome financial bottlenecks.

Note:
In most cases, the approved small loan is paid out as an instant transfer and the borrower can freely dispose of the money. It is rarely earmarked, or paid in multiple installments.

Small loan collateral

Small loan collateral

Financial institutions usually also obtain credit bureau information on small loans. Anyone who has negative reviews here has little chance of getting the loan. It can make sense if the credit bureau provides free information beforehand. Entries are often not deleted on time.

There should also be a regular receipt of money.

In the case of small loans in particular, information is also advertised online with loans without credit bureau. Everyone who chooses such a provider should note that the interest rates are usually higher and an expensive insurance policy almost always has to be taken out as security.

It is also important to check exactly what the conditions are for loans from private individuals. Often the private money lenders are experienced business people and the borrower is often inexperienced. In such cases, no loan contract should be concluded without professional help.

What should the borrower pay particular attention to?

What should the borrower pay particular attention to?

In many cases, small loans are applied for by people who do not have large financial reserves (schoolchildren, students, pensioners). The risk of over-indebtedness is very high for this group of people even with small loans. It is important to check carefully whether payment in installments is always possible within the repayment period. It can sometimes be better to choose lower rates and increase the repayment time.

Even if the terms are much shorter compared to the real estate loan for small loans, it is advisable to agree a free special repayment in the loan agreement. It is also beneficial if the borrower is given the opportunity to arrange repayment breaks or an adjustment of the repayment rate with the bank if necessary. This increases the ability to react flexibly to unplanned events.

Dispo credit or small credit, which is better

 

With small sums, consider whether the overdraft facility is cheaper than the small loan. Here everyone has to do their own calculations. The interest on the overdraft facility varies from bank to bank. On average, they are around 10%. However, interest only has to be paid for the sums actually used and with every receipt of money, the overdraft facility is always cleared first. The approved overdraft facility is also immediately available and there is no further credit check.

Note:
The borrower can get the small loan for 3% to 4%. The money is usually transferred in one sum and the interest and repayment rates are calculated on it.

Even if the advertising promises a lot, such as buying today and in… Everyone has to pay for months to check exactly what they can afford, what money is left monthly after all liabilities have been paid off and what sum is possible for payment in installments. Only then should it be decided whether a small loan can be taken out at this time.