Microloans are considered a quick fix for many people in Norway and beyond. The willingness of several creditors to offer this sort of credit line and the pace at which it can be secured are major reasons for this. However, there are a couple of things to know about it.
On the whole, being well-informed puts people in a good position to make the most of it. Furthermore, it ensures that its several pitfalls are avoided. This article discusses several things to know about this kind of credit line, especially in the Norwegian context. So, read on to stay informed.
What Is a microloan?
Technically, loans that do not exceed 20,000 Norwegian Kroner are what are regarded as microloans in Norway. In addition to this, the minimum that most creditors would offer is a thousand Norwegian kroner, at least. For the record, several options would not go that low.
For example, some lenders have a minimum limit set at 2000, 5000, and even 10,000 Norwegian kroner. As a result, it is harder to give a minimum range to this type of credit line. Be that as it may, they can be considered borrowed amounts between the ranges of 1000 – 20,000 Norwegian kroner in this Scandinavian country.
The little amount that can be secured is what earns it the name – microloan. Against this backdrop, you should know that there are small, as well as large loans offered by several creditors in the market.
As opposed to microloans, small loans are credit lines exceeding 20,000 Norwegian kroner, but not beyond 75,000 Norwegian kroner. On the end of the spectrum are large loans which are credit lines exceeding 75,000 Norwegian kroner. The maximum amounts that can be secured with these types of credit lines are dependent on several factors.
For example, lots of creditors operate with loan caps for unsecured loans. As a result, borrowers cannot secure amounts exceeding 600,000 Norwegian kroner with unsecured large loans. On the other hand, the borrower’s pledged collateral is what determines what can or cannot be secured with secured loans.
Microloan Lenders
Two kinds of lenders grant this kind of loan to eligible applicants. The first are options that exclusively offer this type of credit line. In other words, this is the only type of credit line offered by them. As a result, small and especially large loans cannot be secured from such lenders.
On the other hand are options that offer various types of consumer loans. By various types, we mean that these creditors offer micro, small, as well as large loans.
However, it is worth mentioning how there are differences between both types of lenders. Let us examine some of these differences:
Options that Exclusively Offer microloans
Discussed below are some of the things to know about these types of microloan creditors:
Costly Loans
Options that exclusively offer microloans are usually more expensive. For example, a good number of them can charge as high as a 60 percent nominal interest rate, or even higher. While this sounds outrageous, the more shocking part is that the cost does not end there.
This is because there are other expenses besides the high nominal interest rate. On the whole, the effective interest rate can amount to as much as a hundred percent or even higher than that.
Little Regard for Credit Profile
Paying very little or no attention to the applicant’s credit profile is a major reason why these loans are usually very expensive. The ideal thing should be assessing the creditworthiness of the applicant. This assessment would then form the basis for deciding the loan’s cost and other terms and conditions.
However, most lenders in this category pay very little or no attention to doing this. As a result, most borrowers are offered the same terms and conditions. This is regardless of how good or bad their credit profiles are.
Such lenders are usually more interested in whether or not the applicant is eligible enough. Once the applicant is considered eligible enough, he/she gets pretty much the same terms as other lenders.
More Accommodating to Loan Applicants
This is the case given how such creditors are usually known to offer microloans at outrageous nominal interest rates and fees. As a result, even people finding it difficult to secure credit lines because of their high-compromised credit state may stand a chance with them.
Accusations
The activities of many lenders in this category have been considered predatory in many quarters. For this reason, people need to be extremely careful when dealing with them.
Good Options
It is worth mentioning that not every lender that exclusively offers microloans engages in predatory lending practices. This is even though it is quite a common practice among many of them.
In light of this, doing your due diligence can help you identify the right type of lender in this category. By the way, choosing the right lender among options in this category will be a lot easier with the help of some platforms.
Some of these platforms have tools such as loan calculators. For example, if you want to borrow lån 3000, which is the Norwegian translation for a loan of 3000 Norwegian kroner, you can input this detail and several others. Other details that can be imputed include the repayment period and age.
You would then get options from several lenders based on the imputed information. There is also the viable option of using the services of a brokering agent. This agent would quickly get you several offers from various lenders.
Fewer Lenders
For the record, most people who secure microloans get them from options in this category. However, it is worth mentioning how there are very few lenders that exclusively offer microloans in the credit market.
Options that Offer Other Types of Loans
These options do not exclusively offer microloans. They also offer other types of credit lines to qualified applicants. Some of the things to know about this type of lender (in the context of granting microloans) include the following:
Cheaper
To set the record straight, microloans are generally not cheap. They are perhaps the most expensive credit lines. This is because of the desire of the lenders to get as much profit despite the small amount lent to borrowers.
Be that as it may, micro-credit lines from this category of lenders are usually cheaper than the other options discussed early on. So, people in search of the cheapest microloans stand a better chance with lenders in this category. For example, while options that exclusively offer these loans can charge as much as a hundred percent effective interest rate, these can charge half of that or even less.
Attention to Credit Profile
Lenders in this category are usually known to pay serious attention to the credit profile of lenders. In other words, they critically examine the credit score and the financial history of the borrower. For these lenders, this practice is important for two reasons.
First, it plays a huge role in deciding whether or not the applicant is eligible enough to be granted the loan. Secondly, (if the applicant is considered eligible enough to be granted the loan) it plays a huge part in deciding the interest rate and other terms and conditions.
Unlike the earlier discussed type of lender, options in this category do not deal with every borrower in the same way. This is especially true in terms of setting nominal interest rates and other fees.
Less Accommodating to Borrowers
Not too many borrowers get to use credit lines from this category of lenders for securing microloans. There are several reasons for this including:
- Stringent Requirements – These lenders will not turn blind eyes to some of the things that the earlier discussed lenders would turn blind eyes to. This is especially true when it has to do with eligibility. As a result, a lot of people do not qualify for microcredit lines from these lenders
- Demands of Other Consumer Loans – Lenders in this category do not exclusively offer microloans. The financial demands of offering small, as well as large loans thereby affect their ability to offer so many people microloans. The fact that it is easier for them to profit from small and large loans is also a reason for this
For both reasons, many people who would like to secure microloans from lenders in this category cannot do so. A lot of these people therefore have to rely on options that exclusively offer microloans.
Many Lenders
More lenders in this category offer microloans than options that exclusively offer such. However, the irony is that most people who secure these credit lines get them from options that exclusively offer them.
Conclusion
Generally speaking, microloans are perhaps the most expensive credit lines. However, many people pay very little or no attention to how expensive they are. This is especially because of the low amounts secured.
Well, you need to pay attention to this. This calls for choosing the right lenders. This is why a large portion of this article delved into the various types of microloan lenders. So, make good use of this information going forward.