If you have always wondered what a small loan is, you can find information here. We have compiled the most important information:
What is a small loan?
A Small loan is an installment loan, where the installment loan is set at a specific amount, which is later repaid in installments by the debtor themselves.
Small loans are popularly known as "consumer loans".
Small loans have been available in Germany since the 1950s. Nowadays, this form of small loan is available at every commercial or internet bank.
With this form of credit, collateral is usually not required, although many banks still initiate a wage or salary garnishment to ensure security in case the borrower can no longer pay the installments. If a borrower's creditworthiness is insufficient, a guarantee can be demanded as security. The loan agreement records the monthly installments, agreed interest rates, and the borrower's fees.
The interest rates for a small loan are usually significantly higher than, for example, for construction financing, but usually lower than for an overdraft facility. Normally, a residual debt insurance policy is also taken out with a small loan.
Although this residual debt insurance causes various additional costs, the loan can be protected in the event of death or illness. As with most loans, small loans are also provided with a Schufa entry, although this is usually not negative and is entered for various forms of credit. The advantage for other credit institutions is that they can track exactly which other loans the borrower has already taken out and whether there were any complications.
It is certainly a trend to get a loan online, but one should be careful here, as there are also numerous credit companies that do not offer really good loans. It is helpful to look through current financial magazines, which often also provide tips on loan websites.
Read also: Differences in real estate loans for houses and apartments
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