Borrowing one or two thousand USD from a bank quickly and enjoying the fact that things have become quicker and less complicated in recent years is a good way for many to fulfill a few wishes. Only a few people are concerned that taking out small loans could also have negative effects.
First of all, the positive: If you need a four-digit amount in the three or low range quickly, the possibility to apply for a small loan is a welcome one. Most of the time, it only takes a few days to get an answer in the form of a promise or a rejection. The amount of money will then be transferred promptly.
With the small loan, there is hardly any risk of being at fault.
Small loans are also often recommended to compensate for overdraft facilities as they are much cheaper.
Small loans or even loans with negative interest rates are often just marketing tools from the banks. This means that they are actively advertised to attract new customers. If you take out a loan like this and it turns out a little later that the loan amount is not enough, you rarely have the opportunity to get the required amount back under the same conditions.
The strongest negative point, however, is the impact on credit bureau. When assessing creditworthiness, it is not important what the loan was taken out for and at what interest rate. The fact that a rather smaller loan amount was used is valued much more. This is rated negatively, because for credit bureau it means that the borrower does not even have such a small amount available in the short term.
It looks even worse if you apply for two small loans in succession in a short time. For credit bureau, it means something like, you can not handle the money, default risk is high, and thus the chance of a larger loan decreases rapidly.
It’s still worth it …
…in some cases. As mentioned above, if you want to compensate for a disposition with it. Because with overdraft you often pay at least twice as much interest.
A small loan is also recommended if you do not want to get another loan in the foreseeable future.
In all other cases – as well known and boring as it sounds – you should think twice about whether you really need a small loan, or you can wait a bit for a sofa, a new fridge or a new cell phone.
Conclusion: “A small loan on particularly favorable terms, a loan with negative interest, 1000 USD immediately” – many lenders are currently advertising with these slogans. And in some cases there is nothing to be said against it if you resort to it: if you want to compensate for an expensive overdraft facility, or when you simply want to treat yourself, and not intending to take out a loan again in the foreseeable future.
If you do not belong to these two categories, you should better deal with the topic and think carefully about the urgent need for such loans. Because credit bureau does not sleep, and an incorrect act can have a negative impact on creditworthiness in the future.