Small loans are on the rise. The demand for these short-term financial solutions has increased significantly in recent years. However, the risks associated with a small loan should not be ignored.
Small loans are becoming increasingly popular
Small loans are becoming increasingly popular in Germany, as a recent report from the credit agency Schufa reveals. According to this publication, demand for small loans increased from seven million in 2021 to 9.1 million in 2022, an increase of around 30 percent. This trend sheds light on the growing acceptance of small loans among the population and the increasing willingness of consumers to bridge short-term financial bottlenecks with the help of this type of loan.
Fast availability and high flexibility
A small loan, as the name suggests, is a comparatively small loan amount that is granted to private individuals by banks or credit institutions. These loans are usually characterized by quick approval and disbursement. This makes them an attractive option for consumers who need short-term financial support, according to TARGOBANK. Small loans can be used for various purposes, be it for unexpected expenses, repairs, vacations or the purchase of high-priced consumer goods.
The advantages of small loans are obvious: They are available quickly and generally do not require a complex credit check. This makes them particularly attractive for people with lower incomes or average credit scores. Small loans also enable flexible repayment, so that borrowers can adapt the term and installment amount to their individual needs, as the Sparkasse reports.
Risk of debt trap
However, despite these benefits, consumers should not ignore the risk involved. Small loans tend to have higher interest rates than traditional loans. This means higher costs for the consumer, meaning if the loan cannot be repaid on time, reports Norddeutsche Rundfunk (NDR). The temptation to take out several small loans at the same time in order to cope with financial bottlenecks can quickly lead to a debt trap, the NDR continues.
Editorial team finanzen.net