Small loans

Microloans – what and how

A microloan is not a type of loan that is very well known in Europe. It is more commonly known in parts of Africa. It has gained a foothold there because it is a way for people to obtain the financial means they need to earn a living so they can support themselves and their families. The introduction of microloans in African communities has also helped address the issues surrounding illegal lenders who charge extremely high interest rates, up to 200%, making it impossible for borrowers to repay their debt.

Fortunately, this is not such a relevant issue in this part of the world. Here, it is more common to take out a microloan because you are short on pocket money when going on holiday or lack funds to cover an unexpected expense. Now that this type of loan is entering Norway, it is appropriate to define microloans in relation to the other types of loans that exist in the market.

What a microloan actually is

Microloans belong to the same type of loans as mini loans or SMS loans. The collective term for such loans is small loans. Small loans have an upper limit of 50,000 kroner.

A microloan, or short-term loan as it is also called, is a type of loan that mainly has a repayment period of up to 50 days, but most commonly 30 days. This means that the loan must be repaid within that time. It can be a quick solution if you know that you will have the money to repay the loan when the term of the microloan expires. The loan amount can vary between 1,000 and 5,000 kroner. In some cases, depending on the lender, the amount can go up to 10,000 kroner.

All the costs associated with the loans are the same. If a larger amount than 10,000 is needed, it may be beneficial to apply for a different type of loan than a microloan. A microloan works as an unsecured loan. This means that the lender does not take collateral in the borrower’s assets to secure the loan amount that is granted. With all such loans, it is wise to consider how much it is necessary to borrow. Exactly how much is needed will naturally depend on what the loan will be used for.

As with all loans, it can be beneficial to choose a repayment period that results in a monthly cost you are able to manage, even if the key interest rate were to increase. A microloan can indeed be taken out without collateral, but that does not mean a borrower can ignore the agreement made with the lender. It is considered good practice to repay what you owe.

When you need a microloan

There are probably many situations where you might want a little extra money. However, when it is important to take out a quick loan to meet this need is however limited to certain situations.

Above all, it is what is referred to as “unexpected expenses.” If you normally have a carefully balanced budget, it can be disrupted if you suddenly need to cover a few extra thousand kroner. Typical examples here are

• When household appliances break down and you have to pay for a new refrigerator, stove, washing machine, or something else that the household cannot do without without it becoming a disaster.
• If a water leak or similar incident occurs that damages your home. These are typically issues that need to be fixed quickly, otherwise the damage will become even worse.
• If your car needs repairs, you may be in a difficult situation. If your or your family’s schedule depends on getting to work at a specific time and this also involves dropping off and picking up from kindergarten, sports, and all kinds of activities, everything falls apart if this is not fixed quickly.

But there may also be other circumstances where taking out a short-term microloan can be justified. In general, we recommend being cautious about using it for pure consumption, but there may be certain purchases that cannot be postponed. For example, you might be invited on a ski trip but do not have ski equipment. It would be unfortunate to miss out on such an opportunity. With a fast loan approval, you can get what you need to hit the slopes. It is an investment that can also be enjoyed next winter.

A typical purpose many people use microloans for is to pay for holiday trips. The point here is that for many trips it is beneficial to book early in the year, while holiday pay is not paid until June. If you find your dream trip in February and want to secure it, it must also be paid in February. A small loan may be enough. If you repay it in full when your holiday pay arrives, you can safely travel with a fully paid holiday.

The above are only examples. A lender will not ask what you intend to use the money for in the case of an unsecured loan, such as a microloan. As long as you are assessed to have repayment ability, you decide how the money is used. However, for your own sake, you should have a clear plan for how you will repay it.

How much does a microloan cost?

The cost of a microloan, like all other loans, consists of interest and fees. However, you will not receive any interest rate offer until a lender has carried out a credit assessment. This means that you must first submit an application. If it is approved, you will receive a loan offer with a specified interest rate and an overview of the total cost of the loan. It can range widely from around 6% to close to 30%. The better your financial situation is assessed to be, the lower the interest rate.

But you should also be aware that lenders often calculate a higher interest rate on small loans than on larger loans. As in other areas, you get a “volume discount” for borrowing more. In addition, fees will have a much greater impact on the calculation of the effective interest rate when it comes to smaller amounts. Microloans and other small loans must therefore be presented with a relatively high effective interest rate.

The final factor that affects the cost of a loan is the repayment period. The longer the term, the more you pay. This is obvious, since interest is charged over a longer period of time. As a rule, the shortest possible repayment period is recommended for microloans. This is because, unlike larger loans personal loan is manageable to repay over a short period of time, and to limit the total cost of the loan.

But do not let the high effective interest rate lead you to think that it is better to take out a higher loan amount instead. The total cost of larger loans will still be higher because interest is calculated on a higher amount, and a longer repayment period will increase it further.

How do you apply for a microloan?

You can apply for a microloan here on the page. By applying through Nanofinans, your application will be submitted to several lenders for review. You will receive the responses from the banks and their non-binding offers. Since credit assessments often vary somewhat, the offers will differ and some will be more favorable to you than others. Normally, you choose the one with the lowest interest rate.

Our entry criteria are that you are at least 25 years old, have no payment defaults, and have a stable annual income of more than 200,000 kroner. The rest is up to our partner banks to assess.

How large a loan do you need?

Based on your needs, you enter the desired loan amount in the application form. Below you can read more about our loans in the micro segment:

• Lån 1 000 kroner
• Lån 2 000 kroner
• Lån 3 000 kroner
• Lån 4 000 kroner
• Lån 5 000 kroner
• Lån 6 000 kroner
• Lån 7 000 kroner
• Lån 8 000 kroner
• Lån 9 000 kroner
• Lån 10 000 kroner

But assess your finances before applying. Are you sure you can repay it within the agreed time? Many people use microloans as a form of crisis management, thereby continuously postponing the problem to the next month. If the issue is existing loans, credit cards, or other credit you are struggling to repay, it may be a better solution to apply for a refinancing loan through Nanofinans. In many cases, this will reduce expenses and create a more manageable debt situation.

Consequences of defaulting on debt

If the agreement is not upheld, the borrower risks that the lender sends the unpaid debt to collections. If the loan is still not paid, it can be forwarded to the enforcement authorities for recovery, and the lender may take security in assets such as a home to ensure repayment of the amount. In the worst case, a lender with a mortgage on a property may request a forced sale of the home in order to recover the borrowed amount, including interest and fees. It would be unfortunate to risk losing your home over a relatively small amount such as 5,000 kroner.

How do you apply for a microloan?

If you need to apply for a microloan, it can actually be done using your BankID. This is the easiest way to do it. It is possible to apply for such a loan the same day. This is undoubtedly an advantage if you need the money quickly to cover an unexpected expense. The only assessment a potential borrower goes through is a legally required credit check. People with payment defaults or unpaid claims in collections will not have their application for a small loan approved. There is also a minimum age requirement to apply for a small loan, which is 20 years. Otherwise, a person is free to apply for a microloan or other small loans as they wish. The possibility of applying for such loans makes it easier to access money when it is needed quickly. This contrasts with how long it can take to apply for a loan through the more traditional route, meaning a bank. In some cases, it simply takes too long to process loan applications.

Where can you find offers for small loans?

Small loans can be applied for online. This makes it relatively easy to find credit providers that offer microloans and other small loans. As a result, there are many companies offering these services. A good tip is therefore to compare offers from many different providers. This ensures that you, as a loan applicant, get the best possible terms for any loan. The interest rate can vary significantly from one credit provider to another. A person who needs a microloan will naturally want to obtain the lowest possible interest rate available.

SMS loans in Norway

SMS loans are not a type of loan that many online lending companies offer here in Norway, although there are a few lenders that provide similar types of fast, small mobile loans. The point of an SMS loan is that it has a very short processing time for the loan application, and this is made possible because you can only borrow small amounts. There are therefore not many of these “loans-in-a-minute” in Norway, and new Norwegian market regulations prohibit Norwegian lenders from advertising loans as being granted within minutes, etc.

Among our dear neighbors in Denmark and Sweden, however, this type of small loan is very popular, even though you cannot borrow amounts anywhere near what you could with, for example, a regular personal loan. But Swedes and Danes make use of such loans quite often, likely as a way to obtain some money very quickly.

• No hourly loans in Norway

The popularity of these types of small loans in our two neighboring countries is due to the fact that the borrower receives the money in their account very quickly after applying via their mobile phone. This of course comes at a cost and usually involves a fairly high interest rate. SMS loans can still be practical as a last resort to obtain some money in an urgent situation to resolve a pressing problem. It is actually not uncommon for you to have the money in your account on the same day you applied for the loan.

Here in Norway, however, it is rare for us as consumers to see offers of these types of loans. This is because the lender always requires a credit assessment of the applicant, and for that reason it takes at least one business day before the money is transferred to the borrower’s bank account.

• But what exactly are SMS loans?

Well, first we would like to mention that the term “SMS loan” itself is something that has been moved away from today, as you can of course also apply for a loan via your computer or tablet and not necessarily only by sending a text message.

But when we still talk about SMS or mobile loans, this is a type of loan that you apply for and that is verified via your mobile phone. Typically, these loans involve a small amount of money with a very short term (repayment period). In fact, this type of loan was launched as an additional alternative to these “same-day, hourly, or minute loans.”

• Can I get SMS loans in Norway?

There are actually a few similar variants of SMS loans in Norway that you can apply for if the need arises, just under different names, but fast small loans are definitely present in the Norwegian market. You can take a look at our table above to see which options are available.

• Why is the interest rate higher on these loans?

The effective interest rate on such loans can be much higher than on other types personal loanThis is despite the fact that the nominal interest rate is not necessarily higher. This is because the loans involve only small amounts, and for that reason fees and charges will be much higher. By borrowing just 1,000 kroner, for example, you may face a setup fee of as much as 10%. This means the loan has already become very expensive.

Typical factors for SMS loans

• Low loan amounts
• You apply for the loan via a mobile phone
• High effective interest rate
• Short loan term

• How do I apply for an SMS loan?

Below you can see how you usually apply for an SMS loan, although different lending companies may have different procedures for the application process:

• Go to the lender’s website and navigate to the application form. Then enter your phone number and press “continue.” The lending company will then send you a one-time code via text message. You enter this into the application form. Have your BankID readily available if you are a new customer.
• The next step is to fill in all contact information and personal details, in addition to your income. The lender will then send you any offers, which you can accept or decline. If you accept the offer, the money will be transferred directly to your bank account.

• How do SMS loans work in Norway?

Although this term is no longer used, as initially mentioned there are similar alternatives that fall under the category of “small loans.” As mentioned, this term is not commonly used by most lending companies.

You can usually apply for a loan amount between 1,000–15,000 kroner. This varies somewhat between lending companies, as there is no fixed maximum upper limit. However, it should be mentioned that if you only take out 1,000 kroner in such a loan and do not repay it quickly, the interest can become astronomical. This should therefore only be considered a small loan that you repay as quickly as possible.

The reason these small loans are so expensive is that you have to pay a setup fee for the loan, and this is the same whether the loan amount is 1,000 kroner or 50,000 kroner, similar to a regular personal loan.

The purpose of an SMS loan is that you borrow a small amount which you repay within about a month, preferably sooner. It is therefore extremely important that you are able to repay the money quickly, so that you avoid extremely high interest costs.

If you have a well-organized personal economy and take out an SMS loan because unexpected expenses have arisen, there is nothing preventing you from applying for such a loan. However, you should be aware that if you take out such a loan from a bank, the bank will be very quick to send the case to collections if you do not repay it within a short time. This can mean the start of a financial nightmare for you, so it is important to be disciplined about this.

• SMS loans – a term from the past

The word “SMS” itself has become outdated in Norway, as today we refer to it as a “text message.” In addition, mobile phones are now considered small computers where most of what you do on a computer can also be done on your phone. Furthermore, it is now on the internet that most of us choose to apply for loans.

SMS loans, however, are a commonly used loan term in Denmark and Sweden, even though the product has changed significantly. The term also naturally evokes the same associations here in Norway.

• Fast processing time and payout

It is heavily marketed, as previously mentioned, that there is a very short application process and fast payout of the loan. The idea behind this is that it should be quick to apply for small amounts of money. If you are in urgent need of quick cash, it should be possible to arrange this quickly simply by sending a text message to the lending company. However, a credit assessment may still be carried out on you.

A rule of thumb says that if you borrow small amounts of money, you must expect a high effective interest rate. The lending company is obligated to inform you of this before you sign a loan agreement with your BankID. But not only that, since you must expect to pay the same setup fee for this loan as you would for a regular personal loan, let’s say 50,000 kroner, it becomes especially costly for you.

• SMS loans with payment remarks – is it possible?

The answer here is simply no. Unlike the Swedish online lending market, which advertises that you can get such loans even with payment remarks, Norway is much stricter, and in most cases you are prevented from taking out any loan if you have payment remarks or unresolved debt collection cases.

So, before you even consider applying for a loan, you should simply try to repay what you owe, and then the payment remark will be removed after a short time and the opportunities will open up for you. If you disagree with the reason why you received the payment remark, you have the right to complain and should make use of it so that you can resolve the matter as quickly as possible and start fresh.

• Why choose a small loan similar to an SMS loan?

Of course, an unsecured loan such as a regular personal loan would be the ideal option for you, but if you happen to be in a situation where you cannot wait for a long processing time for your loan application, you are also likely willing to pay a bit more for the loan. And indeed, these are small amounts we are talking about.

SMS loans, is it something you should be cautious about?

Well, yes, it is. An SMS loan is, after all, a loan. It doesn’t really matter which type of loan you want to take out. There are some “rules” that you should follow. Fortunately for consumers, these “rules” are relatively easy to remember once you have heard them.

As with all loans, including SMS loans, you should consider how large a loan amount you actually need. You ideally do not want to borrow more than necessary, especially considering that fees are added on top of the repayments you have to make.

When it comes to SMS loans, you should pay extra attention to the difference between effective and nominal interest rates. The nominal interest rate is the rate that is usually stated on paper. The effective interest rate is the nominal rate plus fees and charges. If you are not careful, you may end up paying more in effective interest than you expected.

SMS loans can often have a high effective interest rate. Therefore, you should have enough money set aside so that you can make the repayments on time. This may sound like a parent’s warning finger, and yes, there is some truth to that, but we still recommend it. Mainly because it can save you a lot of financial headaches at a later time. This point is related to the one above, that SMS loans can have a high effective interest rate.

One final thing you should check with SMS loans is the loan term. The loan term refers to how long it takes before you have to start repaying an SMS loan. If the term is sufficiently long, you may actually be able to repay the entire loan without worrying about interest, installments, and fees. This is something many in the finance world would call a dream scenario.

• What about a credit card?

If you have a credit card with available credit that you can use, this can in principle help you in the same way as an SMS loan or a same-day loan, if you will. You can then use the credit card to cover the unexpected expense, whether it is a long time until your next payday, your washing machine has broken down, or you have received an unexpected bill that must be paid immediately.

Also keep in mind that in this case you have an interest-free grace period until the next invoice is due, i.e. 5–6 weeks, which can be an excellent solution if you need money quickly.

Nanofinans helps you find the best loan

First, check what options you have to borrow some money from family or friends, and if you still need urgent help in the form of a small loan, you can scroll up on this page and start comparing the offers available from the lenders that we here at nanofinans.no har listet opp.