The Payday loan offers a way to bridge short-term financial bottlenecks. Customers use such a loan when unexpectedly a necessary expenditure arises. These loans are different from traditional installment loans because of their short maturity and lesser borrower requirements . Furthermore, they are usually associated with higher interest rates and poorer credit conditions. This raises the question of the merits, risks and general suitability of this type of loan.
Payday loan requirements
The first requirement is the minimum age of 18 years. A regular income is another requirement. Typically, 601 euros will suffice for regular monthly income . Some providers, including Ferratum Money, also offer their loans to the unemployed . The reference point in this case is the unemployment benefit. Other requirements include residence in Germany and the disposal of a German current account. A valid identity card is another requirement for the loan application .
For Payday loans providers take a credit report. Accordingly, an appropriate score is required. The criteria here are less strict than with a conventional installment loan . Due to the low loan amount and the manageable duration, the risk of a default is low . However, if a borrower has judicial dunning procedures or reports from collecting societies, even Payday loans may be rejected.
Since the identification usually takes place via video ident, the hardware and software required for this is a further requirement. All you need is a PC with webcam, a notebook with a front camera or a corresponding equipped cell phone with camera.
Payday loan Interest and Conditions
The interest rates and terms of the providers of Payday loans differ depending on the loan sums and maturities. Similar offers from different providers usually have pretty similar interest rates. The annual percentage rate on mini-credits is usually over 13 percent . Since these are very short maturities, these loans appear to be quite cheap in the short term. Who lends about 500 euros for a term of 30 days, can expect to pay interest of a little more 5 euros.
Additional options for Payday loans – cost trap?
With higher costs, every kind of special wishes are connected. Suppliers generate a large part of their sales through special conditions. For example, if borrowers are looking for repayments in multiple installments, the fees will grow dramatically. Vexcash charges 49 euros for the option of repayment in two installments. In the case of a loan of 250 euros, this would be an additional 19.6 percent. With a loan amount of 500 euros, it would still be about 9.8 percent.
Additional fees may apply for certain types of withdrawal. If you want a very fast payout, many providers offer express loan options. This service incurs additional costs, so xpresscredit’s express service costs between 29 and 299 euros, depending on the amount of the loan.
For example, additional fees apply if customers require preferential processing of the loan application or an accelerated credit decision. The provider Cashper offers in this context, the option Super Deal for customers, where time is short. This causes costs of at least 39 euros (from 100 euros loan amount) and a maximum of 99 euros.
It should be noted that these benefits are additional options and there is no obligation to use them. In individual cases, however, the services can be important in order to obtain a loan promptly and to meet important payment obligations.
Payday loan sums and maturities
The Payday loan sums are between 100 and 3,000 euros
One of the reasons for the proliferation of Payday loan is the fact that regular credit institutions generally do not offer loans below a certain minimum as installment credit . This is due to the fact that the costs for the credit check and subsequent credit decision are always the same for banks. Since regular loans usually have a term of between 12 and 120 months, issuing such small amounts of credit to banks is not economical. Therefore, especially customers who need credits between 100 and 1,000 euros, turn to the specialist provider.
Spread among mini-credit providers are sums between 100 and 3,000 euros. Frequently, however, the service providers pay larger amounts only to existing customers who have already noticed positively by timely repayment of a loan.
For the terms are tight time frame of 15 to 30 days usual. Some providers also offer existing customers longer terms or repayments in installments.
Advantages and disadvantages of Payday loans at a glance
Advantageous is the usually straightforward process without major bureaucratic hurdles . Short-term financial bottlenecks can be bridged. The small amounts and maturities limit the credit default risk . Especially for very small amounts starting at 100 euros, these loans can be an appropriate means to provide liquidity . The fact that loans can be granted even with moderate score represents both advantage and disadvantage at the same time. For customers with a weak score this can worsen further, so that in case of doubt the debt trap threatens.
The biggest drawback is the very high interest rates and the numerous hidden costs for additional options . The interest rates on these loans are higher than usual in the market , even in times of low interest rates . Many providers are particularly quick lending decision or payment and only at second glance, the associated additional costs. The small hurdles to taking on such a loan also make some clients defer financial problems rather than sustainably solving them.