Short-term credit is a special type of credit that has to meet certain requirements. The short-term loan comes from the UK and is still relatively new in Germany and therefore not very common. In its original form, a short-term loan lends between € 100 and € 3000, but it has to be repaid after a very short period of time, generally up to a maximum of 30 days (in exceptional cases 60 days). Of course, it is also necessary to pay interest on a short-term loan.
Target group and special features of short-term credit
In general, customers, for example from banks, receive credit after the credit check. The creditworthiness of a person can be determined by the so-called private credit Score. People with a bad private credit score usually do not receive long-term loans out of concern that the installments can not be paid. However, with a very short-term credit, the private credit Score has less of an impact, as the risk of default on this type of loan is different from that of a long-term loan.
Therefore, often people with a bad private credit Score can also receive a short-term loan. The advantage for the customer is therefore often that persons who would not receive a installment loan from a bank, can quite acquire a short-term loan. Often, a short-term loan is used even if people do not have a credit line at their bank.
For unexpected expenses, such as a new washing machine, then can be borrowed by the short-term loan short term money.
One of the benefits of this type of loan is that money can often be obtained very quickly, which helps with short-term financial bottlenecks. However, this type of credit only makes sense for people who are actually able to pay back the money (including interest) after 30 days. For example, if within a short time a salary is received, with which the short-term loan can be paid.
However, most institutions also have exclusion criteria that prevent them from receiving a short-term loan. These include, for example, the registered personal bankruptcy, the instigation of a garnishment or the presence of a warrant.
Sample calculation of interest on short-term loans
Small loans often attract very high annual interest rates, which is considered a disadvantage of small loans. However, since the term of short-term loans is so short, the amount of interest actually payable is not too large, as the following example calculation illustrates. Suppose a person borrows 1000 euros for a short-term loan with a term of 30 days and an annual interest rate of 14.4 percent. The annual interest rate would be 144 euros in this case.
However, since the money is only lent for one month, interest must be paid for only one month. That means the amount of 144 euros must be divided by 12. As a result, the person only has to pay 11.2 euros in interest on their loan.
Conceptual clarification short-term loan
In Germany, the short-term loan is still quite unknown. The mini loan is a synonym for this term. To cover a short-term financial need, this type of loan is suitable. From one day to the other the car does not start anymore or the washing machine does not hurl anymore. If these accidents accumulate, this credit can mean salvation. This is especially true for consumers who have already used up their savings or have none at all.
For such situations, a loan with an extremely short term is suitable, because it is not always necessary to conclude a loan agreement in which monthly installments must be paid for a longer period of time.
This form of credit has a high profile in Sweden as an express credit and in the Anglo-Saxon area under the term Payday Loan. Since 2010 she is only offered in Germany. There is a difference to other types of loans, as a rule, the term is 30 days. The term of regular loans is at least 1 year. In other countries, the term of this form of credit is 30 days.
In some countries, the maximum extension is 4 months. The possible range is slightly different in Germany, it starts at 5 days and ends at 62 days.
Upon expiration of the loan agreement, the borrower is required to repay the entire amount. An existing loan can not be replaced by a new contract for such a financial product. This measure serves the protection of the borrowers, over-indebtedness should be avoided in this way.
In Germany, the fixed term can not be extended, in Anglo-Saxon this possibility exists. Express loans are to be banned in Sweden in the currently existing form. This prohibition is linked to the determination of the permitted interest rate. In Sweden, from 2018, the permissible interest rate may not exceed 40% above the current rate. Especially in the UK, this type of credit is strongly criticized by consumer protection.
Special features of short-term credit
For loans that are characterized by a short term, there are other special features. Generally speaking, there is a limit to the credit line. However, this limit varies depending on which provider has been selected. The range starts at 20 euros and ends at 3000 euros.
At first use, most providers limit the loan amount to 600 euros. The agreed interest must be repaid along with the total loan amount when the due date of the contract occurs, this is to be understood as a general feature of the mini loan. The loan amount can not be repaid in installments, as would be the case with a installment loan. An option of two installments exists only if an additional charge can be made by the borrower.
Compared to long-term loans, loans with an extremely short term are characterized by a high interest rate. The selection of the loan amount has an impact on the terms of such a financial product.
For whom is this type of loan suitable?
Particularly suitable is the short-term loan for consumers with a regular income who need a smaller sum of money due to their financial worries. Any repair costs for a car or the replacement of a device that can not be dispensed with (such as a washing machine or a refrigerator) are typical case studies.
Other important examples of the use of such a loan are back payments, which are in connection with the annual utility bill with the landlord, or a bill due to the utility. The advantages of this loan are that the application can be made unbureaucratically and quickly over the Internet and that the money is provided quickly by the lender.
5 tips on short-term loans
This section presents 5 aspects that are important to a person interested in a short-term loan.
Are the requirements fulfilled?
This form of credit requires from the applicant some conditions that everyone can check for themselves. The permanent residence of the person interested in the credit must be in Germany and he must already have reached the age of majority. For the loan to be repaid, a sufficient income must be earned, the minimum is around 700 euros a month.
Even self-employed and freelancers can apply for such a loan and are not excluded from the outset. If these aspects are correct, all companies that grant loans with very short terms can make their first application on the respective website. There, the exact contract terms can be found out.
Even without private credit possible?
Lovers who already have a negative private credit entry can still apply, because this special type of loan is also suitable for this group of people. Even though the bank would no longer provide normal credit, the chances of getting a private credit listing are good for getting an extremely short term loan.
While the lender carries out a private credit request during the application process, its rating is not particularly stringent. The reason for this is that the amounts that the borrower can dispose of are relatively small.
Alternative personal loans?
Since the type of loan described involves risks, in some cases, another way could be beneficial. People with financial problems can borrow money from their family, friends or colleagues. The advantage of this approach is that no interest has to be paid and that the risk of over-indebtedness is minimized.
The problem is, however, that there is a special relationship of trust between the partners. Often, the debtors do not live up to their promises, which can quickly cause the relationship to be damaged. If individuals who risk being unable to comply with such agreements, a mini-loan from a financial institution would ultimately be the better choice.
Alternative installment loan?
Not for every financial problem, which should be solved with the help of the bank, the described credit form is the best solution. The reason for this is that here the maximum amount of money is very limited and even a short duration can not be the optimal choice for many situations, A favorable installment loan, which is also possible without private credit, can offer credit-interested an alternative. If a major debt rescheduling is required or a vehicle needs to be funded, then a more conventional installment loan is needed.
This loan is also available if a negative private credit entry should be present. For the completion of this financial product but a fixed income per month is needed. A mini job, unemployment benefits is not enough. Such transfers are usually not accepted because the conditions are not secure enough.
Of course, this aspect is especially true if a negative private credit entry already exists. Temporary employment is also problematic in this regard.
Only one credit possible
One aspect is of particular interest to consumers who have already opted for a loan agreement of this kind. Borrowers can only ever conclude a loan agreement under this type of loan. Only after the full payment of the loan amount can an application be made again.
Thus, if full repayment is not successful on time, there is no chance of getting rid of the problematic financial situation by re-closing such a financial product.