The granting of credit, the granting of deferral of payment, is a practice that is as old as humanity, as old as trade itself. Loans can be given in the form of money or goods, even the “borrowing” of food from the neighbor is a form of credit.
Loans never return the same bill or kilo of sugar, just the equivalent. This differentiates every form of lending from rent or lease. For example, when renting a vehicle, the vehicle that was rented must be returned, not any other equivalent vehicle.
Loans are important for trading
Whoever grants credit earns money from it. Banks charge an interest rate on money loans. Business grants a loan by enabling installment payments.
If you pay in cash, you always get what you want cheaper. However, many customers have not always saved the required amount. Without paying in installments or granting a loan, they would not be able to buy the new wall unit or the new television. Therefore, shops benefit in two ways: the trade is boosted and the goods can be sold more expensive. The banks earn on loans, because depending on the term and amount, several million dollars are earned annually only on interest.
In 2011, more than 2.4 billion dollars in loans were granted by over 2,000 credit institutions across Germany, including around one billion to private individuals. With an approximate interest rate of 5 – 8% per year, depending on the bank and the amount of the loan, such loans are a safe and profitable business for all banks.
It only becomes critical when too many large loans have been granted and some of the debtors become insolvent. Such a situation can also be a real problem for a large bank with ample equity.
The small payday loan for private individuals
In contrast to a large amount of money granted by the bank, interest on small payday loans is much cheaper. We speak of a small payday loan if the amount of money does not exceed 5000 dollars.
Such a small payday loan can be used to purchase new furniture or to pay off the remaining debts of a large loan. The debtor does not have to be accountable for the use of the money. So what he uses the loan for is completely irrelevant. Small payday loans are also given with far fewer credit checks.
The next wage payments or just the car can be given as security. With a small amount like the small payday loan, the banks are much more accommodating than with a large loan.
A small payday loan can also be granted by private individuals to private individuals, a small payday loan between friends or in the family is usually granted without interest and is therefore more of a courtesy, but is legally a loan. With an interest-free loan, only the debtor benefits because the creditor only gets back the amount that he has borrowed.
Maturities for small payday loans
Small payday loans for private individuals can be various loans, such as interim financing or so-called mortgage loans. The amount and the terms are determined here from the monthly incoming payments, for example wages or pension payments. The debtor’s creditworthiness, i.e. his creditworthiness, also plays a role, as does the collateral used.
A guarantor can help if you have no collateral or a poor credit rating. Anyone who guarantees a small payday loan is liable for the debtor with his or her assets. Ultimately, the bank doesn’t care who gets their money from. Existing life insurance, life insurance or a home savings contract can also be handed over to the bank as security.
If the loan is repaid on time, the documents used go back to the debtor. Small payday loans can be taken out from a term of six months, around 12-24 months are usual, long-term small payday loans can also have a term of up to four years. The faster the money is repaid, the less interest is accrued. That is why banks are naturally interested in a longer term.
Home finance or very large loans granted to business people can earn a lot of interest with a term of up to 30 years. There is little interest on a small payday loan, but the bank has the security of getting the amount back after a relatively short time.
Overdrafts and credit cards
Anyone who can overdraw his account also gets a loan without having to apply for it. The so-called overdraft facility is a form of small payday loan, which is also based on the monthly payments received by the debtor. However, if you overdraw your account too much and are always in arrears with payments, you are advised to take out a small payday loan. Especially if it is a short-term bottleneck. This is because the overdraft facility usually demands significantly higher interest rates than a small payday loan. In addition, the bank can also cancel the overdraft facility once granted. This can happen if the account is mostly in the red and the incoming payments fail to appear.
Credit cards also grant the holder a, usually interest-free, credit until the end of the month. Because the payments that are made with the credit card are only debited from the account by the credit card company at the end of the month.
Many businesses would not be able to survive without the granting of loans, the granting of small payday loans and the deferral of a payment is a common practice in business. Every day, customers are granted small payday loans in the form of installment payments.
A small payday loan from the bank can bridge a short-term bottleneck, replace an expensive remaining debt or initiate the pre-financing of a higher loan. It is also possible to settle an overdraft facility with a small payday loan, because these interest rates are significantly lower than those for the overdraft facility.