A personal loan sounds like the best option if you have a financial emergency or a crunch in funds that needs to be filled. However, if you go the traditional route, you must apply for a loan with a minimum of INR 5 lakh to INR 10 lakh of the principal amount with the most popular and well-known creditors. When you do not require such a high amount, there is no point in paying interest on the principal amount. So, in such situations, you will have two options: either get a mini loan or a small personal loan.
Many people find themselves in a spot when given these choices. This article discusses everything you should know about mini and small personal loans and helps you understand the most suitable and profitable loan, considering certain factors.
What is a mini loan, and how does it work?
A mini loan is usually a payday loan or a small same-day loan that gets approved almost immediately. The principal amount is usually low, but it gets approved within 24 hours or takes only a couple of days. Since the loan gets approved faster, it doesn’t involve too much documentation, which is a relief for many. However, you must understand that many loans come with higher interest rates. You must take a risk to credit amounts ranging from INR 1 lakh to INR 5 lakh.
Besides, you will not have to go through the gruesome process of documentation, verification, maintaining a good credit score, etc. So, if you have any problem that may risk your personal loan application, you can go for a mini loan. There are different types of mini loans, and their workings vary according to the type you choose.
For example, when you choose the same mini loan, it will be granted instantly, but you have to pay it within a specific timeframe, like six months or a year. Sometimes, you can negotiate with the creditor to extend the repayment duration. However, if we consider a payday loan, you will get a credit based on your pay stub, and once you receive your salary or cheque, you have to repay the loan within 30 days.
What is a small personal loan, and how does it work?
From the name itself, you can understand that a small loan is almost like a personal loan but with a minimum principal amount. Most banks and top-rated creditors offer small personal loans nowadays because it helps mitigate financial debts, fill up the gaps in your finances, and so on. However, a personal loan needs several constraints to be fulfilled on your end if you want to increase the chances of loan approval. For example, you have to keep your CIBIL score high to get the loan approved without any hassle.
In the same way, you must show proof of a steady flow of money into your bank account every month so that you can pay off the monthly payments without any late fees. The better your CIBIL score is or the more you can make your portfolio stronger with documentation, the greater your chances of having your loan application approved.
Which one should you use to fulfil your needs?
It isn’t easy to decide whether you should go with a mini or personal loan, especially when both offers seem lucrative and profitable. This is why we have drawn a parallel between the two types to help you understand which will be better for your circumstances.
Chances of approval
The first and foremost factor based on which you can judge the mini loan and the small personal loan is the chances of approval. When taking any credit, it’s essential to understand that it will be approved only when everything is on track. However, if not, there will be severe consequences, and your loan application will get rejected.
Based on these, the chances of a loan application for a mini loan are much higher than those for a small personal loan because private and small-scale financiers usually offer many loans. In contrast, banks and public creditors grant small personal loans.
You also have to pay attention to the interest rate. No one wants to pay more than necessary or the minimum amount charged across the market. If your loan application doesn’t have a strong foundation or you fail to submit appropriate documents with a high credit score, you will end up paying a very high interest rate for your small personal loan.
This is because you will neither be able to provide collateral for the loan nor will you be able to satisfy the creditors that you can pay the debt every month on time, so they will automatically charge a higher interest rate to mitigate the risks. But if we look at mini-loans, the interest is usually high, no matter what documents you send or what your credit score is.
When you apply for a mini loan, you don’t have to submit much documentation. You only need your ID proof, address proof, and any income proof. Therefore, if you do not have the documentation done currently or there are some glitches with the papers, you can go for many loans because the creditor will grant you the principal amount without even looking at the documents you submitted with the loan form.
However, when you opt for a small personal loan, you must approach a public creditor or a bank. As expected, they will request all necessary documentation, such as your ID and address proof, proof of income, credit history, transaction history, and so on. If these documents fail to satisfy the terms and conditions, your loan application will be rejected. So, judging by these factors, mini loans are the better option.
Since now you have a clear idea about the differences between a mini loan and a small personal loan, you can easily decide which one you should go with based on your credit score, the availability of documents, the chances of approval, and so on. Get in touch with a professional so that you can understand the scope of a mini loan and a small personal loan in depth and then take the appropriate decision. Piramal Finance can help you with the consultation because they have experts in the field who have been working there for decades.