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Why take a small loan?

The small loan

Installment loans with a small loan amount are commonly referred to as small loans.  While there is no common common definition of the maximum amount of a small loan, in practice it has become established to refer to loans from € 500 to € 5,000, sometimes even up to € 10,000, as small loans. As a rule, small loans are taken up to finance consumer goods or to repay existing loans.

Requirements for a small loan

Requirements for a small loan

Because of the low sums of money, most banks provide a proof of income from the last three months or a current account, on which regular salary payments are received, as collateral. However, as with all loans, the precondition for taking a small loan is that the borrower must be of legal age (18 years). In addition, he should have no negative Private credit entry, because even with a small loan, the bank checks the creditworthiness of the applicant. Once the loan has been taken out, the customer can rest assured that the loan interest rates fixed in advance will remain constant over the entire term, giving him absolute planning security.

Share of small loans in total lending volume

According to this definition, about 70 percent of lending credits to private individuals in Germany are small loans, which makes them the most common type of loan. Within small loans, about one third (30 percent) of loans total up to 1,000 euros and 15 percent to 1,000 to 3,000 euros. The remaining 25 percent are loans with loan amounts of 3,000 to 10,000 euros. This distribution has remained almost constant in recent years.

Why take a small loan?

Even though the loan amounts for a small loan may not be very high, there are many situations where such a sum can bridge a financial bottleneck. This is the case, for example, when unforeseen bills (for doctors, repairs or other emergencies) have to be settled, drastic changes are required (for example, marriage, childbirth), interim financing or bridging for lower-income periods is required to avoid the expensive overdraft interest on the credit line.

What you should pay attention to

What you should pay attention to

Even when applying for a small loan, you should look out for certain things to get the best deal:

  • Borrow only as much money as you actually need
  • Choose the running time as short as possible
  • Calculate the monthly loan installment realistic and not so high
  • Prefer loans with special repayment right
  • Use a free online loan comparison