Microloan or bank loan: which is cheaper, and when
How a microfinance product differs from a bank one, why its annualised rate is higher, and when it is still the right call.
- Speed
- the microloan’s real advantage
- Annual rate
- its real disadvantage
- Term
- the longer it runs, the wider the gap
Two different products, not two prices for one
A microfinance organisation and a bank solve different problems. The bank works with verifiable income, asks for more documents and takes longer — but it also funds itself more cheaply, so it can lend more cheaply. An MFO takes on more risk and checks less, and prices that risk into the rate.
So "which is better value" is the wrong question without context. The right one is what you need: the lowest price, or speed and light requirements. If you qualify at a bank, the bank is almost always cheaper.
How to compare without fooling yourself
Microloans often quote a daily or monthly rate, which makes the number look small. Annualise it: multiply a daily rate by roughly 365, a monthly one by 12. Only then are the two figures comparable.
Second, compare money rather than percentages. On a small amount over a short term the absolute difference can be minor, and speed genuinely wins. Over a long term the same rate gap becomes a substantial sum — run both through a calculator.
- Annualise any daily or monthly rate before comparing.
- Compare in money, not percentages — at your amount and your term.
- Check the late-payment penalty and how it is calculated.
- If you meet a bank’s requirements, ask there first.
Calculations are indicative and are not an offer of credit. Final terms are set by the lender.