Mini loan or overdraft facility? Which loan is better?
Interest rates are low, and short-term expenses are higher than expected because the washing machine has given up its ghost or Christmas and the gift purchase is just around the corner.
How quickly did you overdraw your account?
If the bank has set up an overdraft facility, that’s no problem at first. Finally, the loan is available relatively quickly and just as easily. Just go to the nearest ATM, enter the desired amount and the credit is available! And the whole thing completely detached from any opening times of the bank. Another advantage: no lengthy discussions with the bank advisor, no submission of any documents or a long explanation of why you need a loan right now. The overdraft facility sounds like the non-plus-ultra – right?
But what if the bank changes its mind and quits? Or is it simply realized that the overdraft facility is too expensive? What would be an alternative to the current overdraft facility? Wouldn’t a mini loan for unexpected or temporarily higher expenses than usual be better? Questions we want to get to the bottom of.
Why a mini loan is better than an overdraft facility
The advantages of a mini loan start with interest. With a mini loan, you benefit from a permanently fixed interest rate. Where, however, the overdraft facility can become expensive due to its generally high interest rate and the risk of a short-term adjustment of the interest rate to the market. The timed repayment of the mini loan also ensures that you can really get out of the temporary lack of liquidity and not nestle in it. The bank can also simply shorten or terminate a overdraft facility in the event of permanent non-repayment or lower cash receipts. A situation that then leads to the next problem: either pay everything at once or reschedule.
This risk can be avoided from the outset with a mini loan and its specified credit terms. Approving a mini loan is quick and easy. Why the loan applied for usually arrives in your own account within two to three working days. Without using any additional options that are subject to a fee. Especially in times when interest rates are very customer-friendly, mini-loans also offer the advantage that interest rates remain the same throughout the term. The overdraft rate, on the other hand, fluctuates and is also sometimes significantly higher than the average interest rate for a mini loan, which also affects the amount to be repaid.
What to look out for with mini credit
Because of their profitability, mini-loans are often given primarily by direct banks and financial institutions specializing in this type of loan, less often by traditional branch banks. Therefore, when applying for a mini loan, you should pay attention not only to the interest rate, but also to the rate amount and the term length. In addition, providers should be preferred who have a corresponding banking license and are therefore allowed to carry out the credit business in Germany. If the money is needed particularly urgently, you should check whether an instant payment, a so-called lightning loan, is offered.
But also here applies: Check the loan offer for hidden costs and think carefully whether you can not wait a day longer for the borrowed money. Some providers of mini loans still secure themselves through Credit Bureau, despite their speed and unbureaucratic allocation. This can also play a role in the approval. Basically, it should be borne in mind that the lower the loan, the faster the processing time. The terms are also significantly shorter.
When the mini loan is worth it
Above all, it is of course always better to be able to access reserves in order to avoid debts in general. If you have no reserves and need a little financial injection, you can get a mini loan quickly and easily. Taking out a mini loan is particularly worthwhile if short-term liquidity problems are to be solved easily and without long-term commitment.