What are microloans, why you should be careful in applying for loans

What are microloans, why you should be careful in applying for loans

In the conditions of an unstable economic situation in the world, many entrepreneurs, as well as states, sometimes delay wages. The lack of money pushes people to extreme measures, so most of them apply to the bank for a loan or apply for microloans. If you still do not know what a microloan is, then now we will tell you everything about microloans, consider the scheme for their registration.

Microloans: what is it

Most users who are faced with financial problems consider a microloan a magic wand. Nevertheless, there are those who call this type of loan a debt hole. A microloan is presented in the form of a small loan for a short period.

The features of such a quick payday loan are the following points:

  • a simplified scheme for obtaining a loan service - funds are issued upon presentation of only one document, for example, a passport;
  • funds can be received immediately upon visiting the organization or online.

So, the next question is: How much interest is in a microloan? The interest rate can be up to 1% per day. When compared with bank loans, the rates of which are 10-20% per year, then this is not entirely profitable. Microloans were invented to cover the needs of small businesses. Since the entrepreneur needed line investments for a short period, and the system for processing bank loans was too long, mini-loans have become a popular way to quickly receive funds.

What is the difference between a microloan and a loan:

  • Physical location. The first and essential difference between a microcredit and a loan is the place of registration and issuance of money. In a bank in a bank, a microloan is issued to legal entities that have a special appropriate permit.
  • Requirements. The bank is a large financial institution that takes into account credit history, availability of guarantors and income level. A microfinance organization does not pay attention to credit history, solvency, and the absence of debt. Since the recipient of a small amount must return it within the agreed time, regardless of their financial situation.
  • Working with debtors In case of debt to the bank, the institution solves the problem with the debtor through the system of jurisdiction and does not go beyond the bounds of the law. A microcredit firm solves a problem with a borrower who owes money with the help of collectors.
  • Amount borrowed. A banking institution lends any necessary amount, the MCC has restrictions.

Microloans: advantages and disadvantages

Any financial scheme has its positive and negative sides.

The advantages of a microloan are:

  • Quick opportunity to get the right amount. With a small amount of payment, a microcredit can be issued within 15-20 minutes, and you can receive a credit on a bank card, virtual wallet.
  • Lack of identity verification. Most MFIs lend money at interest to each borrower, provided that he has reached 18 years of age. Other organizations are taking stricter measures and requirements for the provision of documents and a passport.
  • The possibility of a refund without paying extra interest. The legislation allows the borrower to repay the microloan within 14 days, while paying the amount of interest only for the period of using the loan.
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Among the shortcomings, the following factors can be distinguished:

  • High interest rates that are charged daily for the use of borrowed money - from 0,5 to 1%. In a year it turns out more than 182%.
  • A large amount of fines for an urgent period, which may exceed twice the amount of money taken on credit.
  • Problems with collection companies. An MFI that encounters an indebted borrower sells the loan to another firm. The purpose of this company is to receive and repay the debt by any means.

When to apply for a microloan

To begin with, it is important to assess the criticality of the situation and decide whether you really need to borrow funds from MFIs. It is also important to assess your ability to return with an interest rate. Make sure that your future budget will not be affected by this.

A microloan should be taken for a minimum amount and for a short period of time. Even in the most difficult financial situation, if you do not have a permanent source of income, you should not take a microcredit.

A microloan is appropriate in some cases:

  • there is not enough finance before the next salary;
  • limited budget for making a purchase;
  • an emergency on which your life, the health of loved ones depends.

So, in which MFIs can you take two loans? It is worth noting that it is difficult to do this simultaneously in one MFI if the previous debt is not repaid. You can apply to two different financial institutions.

What are the loans

Microcredits are in the form of cash payments, secured by property, including transport, to a bank card, to a virtual wallet, a microloan for business.

On the bank card

It is the most common option, since the borrower has the opportunity to receive a financial payment remotely. Money is transferred quickly in small and medium amounts. There are no requirements for borrowers. The approximate interest for using the loan is 1% per day.

In cash

This type of payment can only be received after visiting the office. The disadvantage of this method is that during a personal visit, the manager evaluates your appearance. A more well-groomed borrower has a higher chance of getting a large loan.

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Secured by transport

Secured loans are issued only at the offices of microcredit organizations, as there is a need to certify and sign a package of documents. For many, this option is a good deal, as the borrower can get a large amount of money, and the interest rate drops to 0,05% per day.

Online wallet

The system for receiving money is similar to a bank card, but there are several differences:

  • the virtual payment system has an interest rate for transactions, so when withdrawing money, the borrower loses from 1 to 5% of the total amount;
  • there are limits on money transfers, which aggravates the process of transferring the required amount from MFIs.

Business loans

It is unrealistic to get such a microloan online, since you need to visit a physical office and put signatures on papers. There is a possibility that the organization may require additional information from the borrower.

What you need to know when using a loan

There are some limitations in the work of microfinance and microcredit organizations:

  • The maximum loan amount is 1 rubles.
  • Cash loans are issued exclusively in rubles.
  • When applying for a loan for less than a year, the maximum interest for the borrower is within 1% per day.
  • A financial miniloan prohibits collateralization of real estate. That is why you can practice either a guarantor or provide a vehicle as collateral.
  • The penalty should not exceed twice the size of the mini-loan.
  • MCCs and MFOs do not have the right to charge interest on a mini-loan, the amount of which is less than 10 rubles, and the term of use is less than 000 days.
  • Any organization must provide a license to operate.

What to Consider Before Applying for a Microcredit

It is important to consider the need for such financial assistance from the organization. The selected company should be checked through the state register. You need to carefully study the loans and what percentage they have, familiarize yourself with the contractual terms.

It is recommended to study the package of documents for additional services that may affect the final amount of the refund. Pay attention to the entire loan amount, which is fixed on the first form of the agreement, highlighted by a frame.

Is there an alternative to a microloan

Of course, the most reliable way is the gradual accumulation of the budget. In other words, the formation of a financial cushion that can be used in unforeseen situations. You can borrow some money from friends or family.

In case of hopelessness, it is better to contact a banking institution and apply for a non-purpose loan. If you have a good credit history, then you can get money within 30 minutes, and the conditions for their return will be much more favorable than a loan from an MFI.

Another profitable and universal solution is to issue a credit card, which will have a long grace period. Its competent use allows you to avoid interest, as well as receive cashback for some operations.

If you decide to borrow money at interest from an MFI, then in order not to fall for scammers, check for their license. So you can protect yourself from black creditors.

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