If money is tight and the credit rating is bad, this can be a tempting offer: a loan without a credit check. But when something sounds so tempting, danger is often not far away.
Whether mini, small or short-term loan: behind different names there is basically one and the same promise – to help people out of financial bottlenecks. Usually also quickly and unbureaucratically. But what is meant by such a loan? And why should consumers be wary of such offers?
At first glance, the so-called small or short-term loans hardly differ from other installment loans – they all have to be repaid with interest in fixed installments. Only: small and short-term loans are usually applied for online, a credit bureau information is often not required.
The actual difference, which is often invisible to consumers, is hidden elsewhere: loans of less than EUR 200 or those – regardless of their amount – that have to be repaid within three months are not subject to the EU consumer credit directive. “Consumers are therefore not protected,” says Ulf Linke from the Federal Financial Supervisory Authority (BAFIN).
Providers of such loans are not, as is usual, obliged to provide comprehensive information on the loan conditions in a written contract. This can make it difficult for those interested to see the interest and other costs of the loan. Consumers are also not entitled to the 14-day right of withdrawal for small or short-term loans.
Above all, it is the other costs that tend to have an impact on the loan, observes Marcus Köster from the consumer advice center in North Rhine-Westphalia. Because special packages are often offered for the loans that cost extra. For example, one that provides for a credit rating or one that is intended to ensure that the money is paid out quickly.
Companies charge well for these offers, and many of those affected accept this. “Without these packages, the conclusion often makes no sense for consumers,” says consumer advocate Köster. Because customers are often in acute financial distress and need the money quickly.
Vendors and consumer advocates disagree on whether or not the cost of such packages counts toward the cost of borrowing. “If they do this, in many cases the question will arise as to whether these costs are immorally high,” says Köster. But companies like to leave them out. In the case of immorally high costs, a loan agreement would lose its legal validity, and the customer would then only have to repay the money that he actually received, without interest or other costs.
According to Ulf Linke, the consumer credit directive is currently being revised, and its scope of application could also include small and short-term loans in the future. However, this is still a thing of the future. BAFIN and consumer advice centers are now focusing on education. And yet the market is growing.
In any case, Marcus Köster advises consumers to keep their hands off such a loan. His experience is that consumers who want to take advantage of such offers usually have a difficult credit rating. The loan will only open a new hole to plug another. It is therefore foreseeable that the financial problem will exist again in the following month.
For people who are acutely in payment difficulties, the consumer advocate sees only one alternative: “recognized and free debt advice on site”. This could help to get the finances under control in a sustainable and long-term manner.
If you have already fallen on your face with a small or short-term loan and believe that a provider has violated applicable laws, BAFIN advises you to first contact the company concerned. If there is still cause for complaint after this, an arbitration board can be involved.
In addition, those affected can contact BAFIN with their concerns and lodge a complaint. However, Ulf Linke emphasizes that the authority cannot decide disputes and cannot provide legal advice for individual cases. Under certain circumstances, however, the information could provide BAFIN with important information on deficiencies in supervised companies. If necessary, other consumers could be saved from a similar failure.
