When money is needed urgently, there are two main options — bank loans and microloans. Both help address financial issues, but they differ significantly. Below, we’ll examine their key differences.

Understanding the Terms

A bank loan is money provided by a bank to a borrower for a specific period and at an interest rate. Loans are typically used for large purchases, such as housing, a car, or business development. The approval process takes time because banks thoroughly check the borrower's credit history, income, and solvency. However, as a result, bank loans usually come with lower interest rates and longer repayment periods.

A microloan is also a type of loan, but it is issued by microfinance organizations rather than banks. These loans involve smaller amounts borrowed for a short term, often referred to as «payday loans».

Key Differences

Here are the main factors that distinguish bank loans from microloans:

▪️ Loan Amount: Banks issue large loans, ranging from tens of thousands to millions of hryvnias. Microloans are typically capped at 20,000 UAH, with most being just a few thousand.

▪️ Repayment Period: Bank loans are designed for long-term repayment, from several months to decades. Microloans must be repaid quickly, usually within a month.

▪️ Application Process: Getting a bank loan requires proof of income, a credit history check, and sometimes collateral. A microloan, on the other hand, can be obtained within 15 minutes with minimal checks — usually just a passport and tax ID.

▪️ Interest Rates: Banks offer more favorable conditions, with annual interest rates typically ranging from 10% to 30%, especially for borrowers with good credit histories. In contrast, microfinance organizations charge significantly higher rates — from 0.5% to 2% per day, which can exceed 500% annually.

▪️ Flexibility: Banks generally provide a fixed repayment schedule and the option for early repayment. Microfinance organizations offer more flexible terms, such as loan extensions for an additional fee.

By considering these factors, you can choose the best option for your financial needs.

How to Make an Informed Decision?

Now, let’s determine when it’s better to apply for a bank loan and when a microloan is more suitable.

A bank loan is ideal for those planning a major purchase. The advantages are clear: reliability, lower interest rates, and a long repayment term. However, the application process can be demanding. Documents such as proof of employment, a criminal record certificate, bank statements, and information about collateral or guarantors may be required. Additionally, if you have a poor credit history, the bank may reject your application.

If you need money immediately, a microloan is a more accessible option. It can be obtained online with minimal hassle. All you need is a passport, a tax ID, and a bank card to receive the funds. However, microloans come with high interest rates, and late payments incur severe penalties. Therefore, it’s essential to carefully assess your ability to repay the loan before applying.

Conclusion

Bank loans and microloans serve different financial needs. Bank loans are better suited for large purchases, while microloans are more appropriate for short-term financial emergencies. The key is to make an informed choice to avoid financial difficulties in the future.