We spend our lives choosing, from the moment we are born until we die. But as we get older there are choices that can be more complicated than others, especially when they affect our economy. If we need urgent liquidity and our bank does not grant us a credit card, the private sector offers us two different ways of financing: mini-credits and lines of credit. However, depending on our financial needs and the time we need to return the money, we must choose one or the other product.
We will explain when it will be more convenient to opt for a small loan or a private line of credit.
Mini-credits, designed to contract in the short term
One of the main characteristics that differentiates mini-credits from lines of credit is the term. The former, by presenting a high interest rate, limit their repayment time to one month. While the lines of credit can extend the return up to 48 months (depending on the contracted product).
And is that if we contract a mini-credit of 300 dollars (maximum amount for new customers) at 1.1% daily (average interest rate) and to return within the stipulated period, we must pay for the product:
- Interest cost : 100.25 dollars
- Total cost of the loan : 400.25 dollars
Even so, if we contract a line of credit and decide to spend the same amount (repayment period of one month), at an interest rate of 0.27% per day plus the respective commission per provision, the cost of our financing will be:
- Interest cost : 25 dollars
- Disposal commission cost : 37.5 dollars
- Total cost of the loan : 362.50 dollars
As we have seen, although the mini-credits are intended to be repaid in a month, the lines of credit are still cheaper. For this reason and due to the competition that the mini-loan sector receives, companies like Vivus have decided to offer the first of their loans at 0% TIN (0% APR), that is, we will not have to pay anything for their financing.
What would happen if we decided to extend the term?
Let’s imagine that we have already applied for a mini loan, so we can get a credit, generally, of up to 1,000 dollars. With these new data, the cost to return the mini credit in a month would amount to :
- Interest cost : 334.17 dollars
- Total cost : 1,334.17 dollars
However, when the time to pay has come, our economy has suffered a new setback, so we spoke with the company to extend the return period by another five months (six months in total). When carrying out this operation, we must take into account that we will be charged a delay interest of 1% per day.
- Monthly fee: 406.19 dollars
- Financing cost: 1,437.13 dollars
- Total cost of the loan after the six months: 2,437.13 dollars
As we have been able to verify, if a specific unforeseen event arises and our economic situation prevents us from approaching the payment at once, hiring a line of credit instead of a mini-credit, we can save around 1,000 dollars. Of course, we cannot forget that on many occasions the same companies offer us both products and depending on our profile they will be willing to take more or less risk when granting us a loan.