If you need money urgently, you can choose a consumer credit at a bank or a loan at a microfinance organisation. But which option is more favourable? And what is the difference between these products?
A loan is a small short-term lending provided by microfinance organisations. They are divided into two categories, which determines the maximum loan amount. The distinguishing characteristics of a microcredit are usually a small amount, a short term, high interest rates and the simplicity of the application process. It is usually provided online and only a passport is required.
On the other hand, a consumer credit is a type of loan that a bank provides to a borrower at a contractual interest rate for purchasing of goods (works, services) for personal or household needs. Each lender determines its own conditions and restrictions on amounts and terms. On average, money is provided for a period of 3-5 years. The loan amount depends on the borrower’s income level and credit history. The distinctive feature of the bank credit is the relatively low interest rates and the possibility of obtaining large sums in the long term. However, banks usually ask for a credit check and, in some cases, a guarantor.
Which is more favourable, a loan or a consumer credit?
The choice between a microcredit and a loan depends on the borrower’s goals, financial capacity and credit history. A loan may be an option for those who have a negative credit history, or who got refusal at the bank for some other reason. Also it is the best choice for those who urgently need money for the short term.
When you apply for a consumer credit, banks have higher requirements for borrowers. It will not be possible to get it quickly. However, this option is suitable for those who need large sums of money for the long term.
We have analysed the actions of the lending institutions. Now we can understand why the interest rate on a loan is higher than on consumer credit. As a rule, the smaller the loan amount and the shorter the term, the higher the interest rate. The amount of interest rate depends on the type of loan. In the case of a consumer credit, especially without collateral, the rate will be higher than in the case of a mortgage loan.
Banks are interested in maintaining longer relationships with clients for larger amounts. If the amount is small, the interest rate increases. However, it is important to remember that microfinance organisations suggest loans with a daily interest rate, whereas a bank loan is stated as an annual rate. Interest is charged only on the outstanding balance of the loaned amount.
If you need a small amount of money, it is easier to get it at microfinance organisations. The loan is similar to a bank credit, but it is much easier to obtain. The application process takes not more than 10 minutes. You can get it anywhere via internet access. You always have an opportunity to get a small amount of money. Choose a shorter repayment period to avoid paying too much interest.