Differences Between Microloans and Credits

In modern society, borrowing money (whether from friends or specialized organizations) is considered the norm. To obtain a substantial amount, one can approach a bank for a consumer loan, or one can submit an application to a microfinance organization and receive an online loan directly to their card. Today, we will draw a parallel between these types of loans and highlight all key differences.

What is a Microloan?

A microloan is essentially the same as a loan, but it is issued for a shorter term. Depending on the scale of the organization (microfinance organization or microfinance company), the amount that can be issued as a loan will vary. On average, it does not exceed 300,000 rands. The interest rate on a microloan is significantly higher than that of a traditional loan. It can reach up to 1% daily, which equates to 365% annually.

However, some microloans are issued with a grace period during which no interest is charged. For example, if you take out 8,000 rands, you may have an entire week to repay the debt without any interest. A microloan is an excellent way to address short-term financial issues, borrow money “until payday,” and improve your credit history.

Microfinance organizations rarely pay attention to your past and current debts, as well as your income level. To obtain a loan to your card, you simply need to specify the desired amount and provide your passport details. A significant advantage is the ability to apply for a loan online from any device with internet access.

What is a Consumer Credit?

A consumer credit is a large sum of money lent by certified banks. The process of obtaining this type of loan is quite difficult, and it may not be approved for everyone. Bank employees thoroughly check your creditworthiness and assess your credit history.

To verify documentation and identity, you will need to visit the bank in person to sign the contract. Even the slightest delay in payment will result in an immediate report to the credit bureau.

Differences Between Microloans and Credits — Briefly

– A credit is taken out for a long term, while a microloan is for a short term.
– A microloan is much easier to obtain.
– A microloan can be obtained online via computer or phone to a debit card.
– There may be a grace period with no interest.
– Microfinance organizations do not immediately report payment delays to the credit bureau.