So-called “short-term loans” are being advertised with increasing intensity. The central selling point: the loan is paid out in a very short time. Are there any Swiss loans with same-day payments? This article compares Swiss loan and short-term loan with all differences and similarities – and shows when which loan is the right choice.
What exactly is a short-term loan?
Loans with relatively small amounts and short terms are advertised under the generic term short-term loan (depending on the provider, also referred to as micro-credit or short-term loan). Depending on the provider, the maximum loan amount reaches between $ 3,000 and $ 5,000, but is significantly lower, especially for new customers. Loans in the lower three-digit range are the norm.
The loans are related to British Payday Loans: In Great Britain, small loans are advertised that are taken up, for example, a few days before the monthly salary to cover important expenses. The repayment is made immediately after receipt of the salary, including the accrued interest.
In Germany, terms of up to 30 days are common, and with corresponding additional agreements up to six months. Here, too, the loans serve to bridge financial bottlenecks in the short term. Typically, the providers advertise with a very quick processing and payment. In this way, the loan amount can be credited to the applicant’s account on the same day.
From a legal point of view, many of the short-term loan providers in Germany are intermediaries who mostly act on behalf of foreign banks.
Why are short-term loans now being advertised so strongly?
In Great Britain and also in Scandinavian countries, the principle of small, short-term loans has long been part of the credit market. Last but not least, it was British brokers who also offered the loans on the German market. A major reason for the expansion is, on the one hand, the lower costs for fully automated credit checks, and on the other hand, the generally greater acceptance of such offers.
Conditions: Differences between short-term credit and Swiss credit
The target groups of short-term loans and Swiss loans partially overlap. However, there are big differences between the two loan options.
A Swiss loan is an ordinary installment loan. Net loan amounts of up to approx. $ 7,500 with a 40-month term and effective interest rates of 10-11% are common. The lending presupposes a monthly net income from approx. 1100 $. In addition, there must be no hard negative features. This includes, for example, bankruptcies or affidavits.
Short-term loans are also only given to people with sufficient credit ratings. Proof of income and reasonable Credit Bureau information are typically required. However, borrowers with low income (e.g. from a 450 $ job) and relatively low Credit Bureau credit rating classes (e.g. class F) are also allowed.
The effective interest rates of short-term loans are in the range of 10-15%. Interest is by no means the main source of income for providers. The absolute interest amounts are low due to the manageable loan amounts and short terms; for $ 500 net loan amount and 30 days term, not even six USD are due at 14% interest.
Instead, providers earn money through additional services that the borrower makes use of when requested. For an express transfer with credit to the current account on the same day, depending on the provider, 30-60 $ will be charged. The same costs are due for the use of an installment payment. This enables the loan amount to be repaid in two installments. Mathematically, this can result in very high effective interest rates.
When is a short-term loan worthwhile?
Critics of short-term loans see their target group in consumers in precarious financial situations. The rapidly available liquidity does not solve fundamental financial problems, but only delays their escalation. Proponents of the offers see this as an opportunity to quickly obtain liquidity even for those who, despite a reasonable credit rating, have not been granted a credit line or an increase in it from their bank.
In addition, it should be noted that the alternative to a short-term loan is in many cases entering late payment. If rent, electricity bills or insurance premiums are not paid on time, on the one hand there are additional costs due to reminder fees, return debit fees, etc. In addition, the contract may be terminated with all the resulting consequences, such as homelessness or the end of energy supply.
With a short-term loan, however, no damage to personal creditworthiness that has already occurred can be averted. Credit Bureau will delete new entries for claims up to $ 2,000 if they are fully paid within six weeks. The shortened storage periods do not help in connection with short-term loans, however, because the existing Credit Bureau entries prevent borrowing.
On the other hand, it is quite possible to compensate for an overdrafted current account before the termination and to avert a negative characteristic associated with it, if the impending termination has not yet been reflected too strongly in the Credit Bureau scores.
When is a Swiss loan worthwhile?
A Swiss loan can be used to avert an impending termination of the account due to persistent overdraft. This applies in particular if the bank has only threatened to terminate the overdraft facility, but has not yet executed it.
The shortened storage periods of Credit Bureau can also be used with a Swiss loan. If the contracting party has sent the entry to Credit Bureau, it is not (necessarily) a hard negative feature. Borrowing is therefore possible and can be realized in good time.
However, it is important to act early here, as the persistent late payment can have further consequences even after notification to Credit Bureau. If these can be viewed in public directories, Swiss credit is no longer possible.
What happens in case of late payment?
Delayed payments have consequences for both Swiss and short-term loans. For Swiss loans, the EU rules on the bank’s right of termination apply, which are also laid down in Section 498 of the German Civil Code. The bank may always terminate loans with a term of more than three years if the borrower is in arrears with two successive installments in whole or in part and the outstanding amount amounts to at least 5% of the net loan amount. In the event of termination, the loan is due for immediate repayment. If this repayment is not made, there will also be a negative Credit Bureau entry and / or entries in public directories for Swiss loans.
The providers of short-term loans mostly sell their demands for an internal dunning procedure to external collection agencies. There is also a negative Credit Bureau entry.
Conclusion for comparison with the short-term loan
Short-term loans are the German variant of the Payday Loans: The loans are mostly repaid in one sum after 30 days. The providers, who often come from abroad, earn their money mainly with the fees for additional services such as same-day credit or installment payment options. New customers rarely receive more than $ 500, but do not have to earn too much and are also served with below-average Credit Bureau scores. The latter are irrelevant to Swiss loans: only public directories and the applicant’s self-disclosure are checked. Loan amounts of up to approx. $ 7,500 are possible at approx. 10-11% interest. The repayment is made in installments over several years.