A microloan is a small, short-term amount of money provided to borrowers by microfinance organizations (MFOs) for urgent needs. Unlike bank loans, microloans are issued quickly, with minimal borrower requirements and no need for collateral or guarantors.
These loans are typically used in emergency situations: paying urgent bills, covering temporary financial difficulties, or making necessary purchases. The amount usually does not exceed 100,000 rubles, and the repayment period ranges from a few days to several months.
The main advantage of microloans is their availability. They are granted even to individuals with a low credit rating or no official income. However, this accessibility comes with high interest rates, making them one of the most expensive financial tools.
How to Choose a Microloan: What to Consider?
Before taking out a microloan, carefully review the contract terms. The most important factor to check is the annual percentage rate (APR), which determines the total repayment amount.
The average interest rate for microloans ranges from 365% to 730% per year, which is significantly higher than bank loans. Additionally, late fees can greatly increase the total debt.
To avoid unpleasant surprises, clarify:
- The total repayment amount under normal conditions.
- Penalty charges for late payments.
- Whether early repayment is possible without additional fees.
Advantages of Microloans
The biggest advantage of microloans is speed. Unlike banks, which take several days to process applications, MFOs make decisions within 15–30 minutes.
A loan can be obtained online, without visiting an office. The money is transferred to a bank card, e-wallet, or given in cash immediately after approval.
To obtain a microloan, no income statement, collateral, or guarantors are required. The basic requirements include:
- Being a legal adult (18+) and a Russian citizen.
- Possessing a passport.
- Having access to a mobile phone and bank card.
Most MFOs operate online, making the loan process convenient. Borrowers only need to fill out a form on the website and upload a photo of their passport.
Risks and Pitfalls of Microloans
The main risk of microloans is their high cost. With a daily interest rate of 1-2%, the overpayment in a month can reach 30-60% of the loan amount.
Due to high rates, borrowers often take out new loans to repay old ones, falling into a debt cycle.
Some MFOs conceal real terms, impose hidden commissions, or share personal data with third parties.
How to Avoid Risks When Applying for a Microloan?
Before signing a loan agreement, be sure to:
- Carefully read all conditions.
- Check the total repayment amount.
- Clarify late payment penalties.
Before applying for a loan, use online calculators on MFO websites to determine how much you will actually need to repay.
Key Rules for Safe Borrowing:
- Take out loans only from verified MFOs.
- Do not borrow if you are uncertain about repayment.
- Avoid rolling over loans to prevent falling into a debt trap.
Also, we recommend that you read our article, in which we talked about jewelry as protection against inflation.
FAQ
Yes, but this usually incurs additional fees.
Contact the MFO and negotiate a debt restructuring plan.
Yes, many MFOs approve loans even for borrowers with low credit scores.