According to Rūta Mylė, Head of Customer Acquisition at Luminor Bank, people often behave differently when taking out small loans compared to borrowing larger amounts.
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“When we talk about a few hundred euros, the decision to borrow is often made quickly – it seems that the amount is not large, so there is no need to think for long. However, it is precisely then that people less often compare offers, pay less attention to interest rates or additional fees. Paradoxically, a smaller loan often means a higher chance of overpaying,” says R. Mylė.
It is important to evaluate not only the monthly payment
According to the expert, one of the most common mistakes is focusing only on the size of the monthly payment. Although a small payment may seem attractive, it does not show how much the loan will actually cost.
“Small loans are often evaluated based on the principle ‘the important thing is that the monthly payment is small.’ But from a financial point of view, it is much more important to understand the total cost of credit. Two similar offers may look almost identical, but due to different interest rates or administration fees, the final amount to be repaid can differ significantly,” notes R. Mylė.
She recommends comparing at least a few offers before making a decision and paying attention not only to the interest rate but also to the total annual percentage rate of consumer credit, contract fees, and other additional charges. The most accurate offer from a specific bank and all related conditions can be assessed by contacting the bank directly, not through intermediaries.
Financial reserve is better than a loan
According to the expert, small loans are often taken for unexpected expenses – when household appliances break down, a car needs repair, or other unforeseen situations arise. Therefore, in the long term, one of the most beneficial financial decisions is having a personal financial reserve.
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“People often see a loan as the quickest solution, but a financial reserve provides what no loan can offer – the ability to avoid additional costs. Even savings equivalent to a few months’ essential expenses allow unexpected purchases or repairs to be financed with your own funds, thus saving not only money but also reducing stress over time,” says R. Mylė.
It is important not to harm other goals
The expert also urges evaluating how a new financial commitment will affect other personal plans. Even a small loan can reduce the ability to save, invest, or build a reserve for the future.
“Before borrowing, it is worth asking yourself not only if you can repay the loan but also what you will have to give up because of it. If loan payments mean that saving for a home, vacation, or financial reserve will stop for a while, the real cost of such a decision may be higher than it seems at first glance,” says R. Mylė.
According to her, responsible borrowing starts not with filling out an application but with spending a few minutes comparing alternatives and assessing your financial situation.
“A small loan amount should not be misleading. Every financial commitment deserves as much attention as larger decisions. The more information you evaluate before borrowing, the less likely you are to overpay for a rushed decision,” the expert points out.
