What is and isn’t a quick loan?

You can borrow various things, but in the world of finance, a loan is an agreement where a lender provides a borrower with a sum of money to use. 

Loans are a vital part of economic activity, enabling money (capital) to circulate in the economy. 

A loan is paid for using the money; the lender wants compensation, usually in the form of interest (a fixed interest rate). Loan interest is calculated on the borrowed amount. 

Loan terms – loan amount, loan period, repayment deadline, repayment agreement (i.e., payment schedule), interest (interest rate), late payment fee (penalty rate), annual percentage rate (APR), contractual penalties, possible collateral, and other conditions – are agreed in the loan contract. 

Thus, borrowed money is a financial obligation that the borrower must repay. The most considerable risk of borrowing is borrowing too much at once, making repayment unaffordable. 

As you read on, you’ll learn exactly what a quick loan is. 

Consumer credit and its several names

A “Private individual” often refers to a natural person (a consumer). However, private individuals also include all legal entities in the private sector (i.e., businesses). This categorisation distinguishes between private law entities (companies) and public law entities (institutions), i.e., the private sector and the state (public authority).

Consumer loans (also known as consumer credit) are intended for natural persons, specifically individual consumers. 

At the same time, consumer credit is also known by various names, including: 

• quick loan 
• small loan 
• SMS loan 
• overdraft loan 
• credit card loan
• an instalment loan

Primarily for marketing purposes, lenders label consumer credit with endearing names, such as car loan, education loan, beauty loan, home loan, training loan, credit line, motorcycle loan, family loan, refinancing, renovation loan, travel loan, health loan, student loan, business loan, etc.

What is the purpose of a loan?

The loan purpose refers to the intended and permitted use of the loan. 

Generally, lenders impose no preferences or restrictions on how consumer credit is used – in the financial world, this is referred to as free-purpose. Money in your wallet or bank account isn’t labelled with its source (though it’s often traceable). Cash and bank funds are all equivalent, whether received as salary, dividends, or a loan. 

Whilst money flows can be tracked, what matters practically is not whether you use your salary, birthday gift, or investment profit for an expense, but that your income is sufficient to cover planned needs.

Money’s fungibility means every unit is equivalent to another: every €100 note is equivalent. Therefore, money’s origin doesn’t affect its purchasing power, and no different “rules” apply for which source “may” fund which purpose. For example, repaying loan interest always costs the same amount regardless of which income source you use.

In reality, it doesn’t matter which source of money funds which expense. However, in some cases, especially for larger loan amounts, lenders may wish to restrict the use of the loan amount and require confirmation that the borrower has used the loan purposefully.

For instance, housing loans for acquiring, building, or renovating a home typically include the loan purpose in the contract, along with the property address and a specific usage goal. The loan purpose may also be restricted in refinancing. In such cases, lenders can request proof of proper loan usage (e.g., bank statements or payment receipts).

What is loan collateral, and are quick loans unsecured?

Loan contracts can be classified differently, but primarily, lending in the private sector can be divided into loans to consumers and loans to businesses (business loans). 

Another significant distinction in loan classification is based on collateral: loans are categorised as unsecured loans and secured loans. Loans can be secured in various ways. For example, some lenders classify so-called “unsecured” loans as simply secured by the borrower’s income, since the borrower’s income serves as the guarantee for repayment. Only loan agreements for consumers secured solely by income are considered unsecured consumer credit.

What is Consumer Credit?

Consumer credit is a loan provided to an individual for personal consumption purposes. Its purpose is typically everyday expenses (home renovation, vacation, dental care), including purchasing items (phone, computer, furniture, home furnishings). Compared to quick loans, consumer credit has a longer term (e.g., up to 72 months or 6 years), and the application process is more thorough.

Approval for consumer credit takes longer than for quick loans because it relies on the lender’s assessment of the borrower’s income, expenses, and financial situation. A more detailed analysis enables the lender to assess the borrower’s repayment capacity and credit risk (the likelihood that the borrower will be unable to repay the loan on time) more accurately based on their past payment behaviour.

The interest rate for consumer credit is multiple times lower than for quick loans but generally higher than for secured loans (e.g., car loans, real estate loans, mortgages). The loan term for consumer credit is usually much longer than for quick loans but shorter than for secured loans (car loans, real estate loans, mortgages).

What is a small loan?

A small loan is also unsecured, free-purpose consumer credit for individuals. A small loan may be unsecured, but banks may require collateral, such as a pledged deposit or a guarantor (guarantor loan). 

Compared to quick loans, small loans typically have longer terms (e.g., 12–72 months) and a more thorough application process. Processing a small loan application takes longer than for quick loans and relies on the lender’s assessment of the borrower’s income, expenses, and financial situation. 

A detailed analysis enables the lender to assess the borrower’s repayment capacity and credit risk (the likelihood that the borrower will be unable to repay on time) more accurately, as well as their past payment behaviour. Loan terms (including loan amount, interest rate, term, payment schedule, and contract fee) vary significantly among banks and lenders offering small loans.

The interest rate for small loans is multiple times lower than for quick loans, but still higher than for loans with substantial collateral (such as car leases, housing loans, or mortgages). The repayment period for small loans is significantly more extended than for quick loans – not days, but months and years (e.g., 36 months) – but shorter than for car leases, housing loans, and mortgages.

What is a credit card?

A credit card is a plastic (or increasingly virtual) payment instrument issued by a lender that can be used for making purchases. The issuer allows users to access funds up to an agreed-upon limit for daily transactions. 

A credit card is a loan product with additional costs for the user. It resembles an overdraft facility, involving multiple usage fees depending on card activity. Typically, the total purchase amount is deducted from the current account monthly. Credit card terms (credit limit, payment deadline, limit fees, validity period) can also vary considerably. Credit cards are typically issued for a term of up to three years (36 months).

Applying for a credit card is similar to applying for an overdraft, small loan, or consumer credit, and it relies on the lender’s assessment of your income, expenses, and financial situation.

A detailed analysis enables the lender to assess repayment capacity and credit risk more accurately (the likelihood of non-repayment) as well as past payment behaviour. Credit card usage costs are significantly lower than quick loans; some cards may even have lower costs than overdrafts, consumer credit, or small loans.

What is an overdraft?

An overdraft is a type of credit that allows a financial institution to cover a current account holder’s negative balance. The maximum possible overdraft amount is referred to as the credit limit or overdraft limit. In this sense, an overdraft differs little from consumer credit and is still intended for financing daily consumption.

The difference lies in that when funds are received into the current account, the loan amount decreases, and overdraft interest is charged only on the amount of the overdraft that has been used. Conversely, repaid overdraft credit can be reused repeatedly up to the limit.

Overdraft applications are pretty thorough and rely on assessing the applicant’s income, expenses, and financial situation. The limit amount considers transaction volumes. The overdraft period is typically 1 year (12 months), but Estonian banks no longer offer this service to consumers.

Get a quick loan in 1 minute? Up to €5,000 without leaving home?

Over a decade ago, a subtype of consumer credit – quick loans – began to spread alongside the popularity of mobile phones, differing from traditional unsecured consumer credit offered by banks. Loans “available without leaving home” that you can take” quickly online via phone. That was a time when “getting a loan in 15 minutes” was impressive, something banks couldn’t yet do. The term “quick loan” remains popular today.

A quick loan is an unsecured loan with a short term, typically ranging from 30 days (1 month) to 6 months or even a year. Sometimes, terms like SMS loan or payday loan (more common in English) are used instead. But how do quick loans differ from “regular” loans?

Money in 15 minutes, repay “only” after 1 month (30 days)?

Similar to how SMS loans gained popularity, a new type of quick loan has evolved, primarily distinguished by its disbursement speed. The name change stemmed from the fact that we no longer needed to send SMSs to borrow. 

As quick loan providers advertised – “best quick loan,” “you can,” “take without leaving home,” and “beep-beep and money arrives.” However, “15 minutes” was never a fixed timeframe for speed. Lenders constantly competed to disburse loans faster than competitors, not just within 15 minutes.

Thus, more important than a 15-minute benchmark was achieving a perceived short timeframe. If you suddenly discover insufficient funds at a store checkout, failing to get a loan quickly in the store aisle leaves you empty-handed. You could turn to a bank, but for most, this is likely too slow or too late.

The same applies to the “without leaving home” advantage – what does it mean? It means that applying for a quick loan requires only an ID card, Mobile-ID, or Smart-ID, allowing you to get up to €5,000 online without visiting a bank or lender’s office. Previously, not even ID verification was needed – identity was confirmed via a small money transfer (e.g., sending 1 cent to the lender’s designated account).

In reality, early SMS loan providers turned their biggest weakness (lack of branch networks) into an advantage over banks through convenience and speed, as clients weren’t interested in (or lacked time for) visiting bank branches for small loans. The short loan term, however, is an inevitable consequence of limited loan amounts and high costs (high APR), as high fees and interest would quickly turn a “15-minute solution” into a debt bomb that severely hampers financial stability.

How quick loan providers and borrowing differ today

Today, nearly all lenders offer “without leaving home” loans, not in 15 minutes, but completely automatically and instantly (in 1 minute to a few minutes). Loans can be applied for without leaving home, and money is received immediately. Now, the old “quick loan” has almost entirely lost its former speed advantage. 

However, the cheapest quick loan remains very expensive (high APR) and excessively costly.

Thus, the last significant distinction between quick loans and other consumer credit (besides high cost) is the lower creditworthiness requirements. Creditworthiness indicates whether the borrower has sufficient income to meet all loan obligations on time (i.e., service existing loans). This is a simple mathematical calculation: all income and expenses are totalled to determine if surplus funds cover the new loan’s monthly repayment. If not, it’s immediately clear that the loan is too costly, and responsible lending principles should prevent approval.

Ignoring responsible lending principles has led to an increase in court cases in recent years, with judges ruling in favour of borrowers, aiming to curb predatory lending and debt collection practices.

In early May, ERR reported that Estonian courts had halted enforcement orders for quick loan debts because lenders had ignored responsible lending principles. 

The number of borrowers in debt reaches 80,000. 

Lenders use enforcement order procedures (not lawsuits, which are more costly and slower), exploiting borrower ignorance and the court system, thereby trapping them in debt cycles, insolvency, or bankruptcy. As ERR wrote about debt collection, a small debt transferred to collection can quickly balloon into a significant sum due to added fees.

Failing to assess creditworthiness thoroughly enables faster lending but jeopardises timely repayment. Lenders face little loss if high-interest, high-penalty loans aren’t repaid on time. High interest (APR, or more accurately, credit profitability) allows them to profit even if many loans default. Quick loan providers typically maximise profit by charging the maximum legally permitted APR.

APR 

APR (often abbreviated as APR) is a percentage that shows all costs associated with taking the loan (total repayments) over the agreed-upon term. 

Why is APR more important than the interest rate?

Because while interest is one part of loan costs, the APR includes all other financially quantifiable expenses, such as contract fees, credit scoring fees, transfer fees, administrative fees, and monthly fees, among others.

The Law of Obligations Act states that if a loan’s annual APR exceeds the Bank of Estonia’s published average APR for consumer loans over the last 6 months by more than three times, the loan contract is void. This doesn’t mean the loan needn’t be repaid, but until full repayment, no interest or other fees are owed to the lender.

What is a quick loan?

A quick loan is characterised by a simple application process, fast disbursement, and a very high fee for using the money.

• Convenience product: Lenders charge a high premium (e.g., ~4% monthly or nearly 50% annually).
• Minimal background checks: Requirements are low; some quick loan firms (and not just them) may ignore legal obligations.
• Applied online: Existing clients get instant decisions.
• Small amounts: First loans: €50–€300.
• Very short repayment period: e.g., 30 days.
• Campaigns: Lure applicants with “favorable” terms. Most providers encourage extensions at high fees.
• Target audience: Underserved individuals who banks have rejected due to strict criteria.

Quick loans are the costliest loan type.

Unlike other loans (which are equally fast today), quick loans carry the highest borrowing costs. They also have the shortest terms (generally only months). Quick loan firms aim to profit, and their share of bad loans is higher than that of other lenders. To profit, they impose very high fees. Extending repayments can create a snowball effect, multiplying debt via fees.

Use quick loans only in emergencies.

High fees reduce borrowers’ ability to build a strong financial future. Banks are often hostile toward borrowers who request quick loans and may reject their loan applications. Thus, taking a quick loan can hinder future mortgage eligibility.

A quick loan may justify a bank’s refusal to offer a mortgage. Some banks may decline mortgage applications, citing existing quick loans. Each lender sets its credit policy independently, but banks tend to prefer clients who have not taken out quick loans or have repaid all of them.

What Does Refinancing Mean?

Refinancing replaces an existing loan obligation with a new loan. Goals include:

• Saving on interest costs (via lower rates).
• Reducing monthly payments (via longer terms).

Consolidating multiple loans.

Refinancing is an option for repaying expensive, short-term loans. Compared to fastk loans, refinancing loans have longer terms (years, not months) and a more thorough application process. Processing takes longer and relies on income, expenses, and financial assessments. A detailed analysis enables lenders to assess repayment capacity, credit risk (the probability of default), and past payment behaviour.

Repayment periods are significantly more extended than for quick loans, and interest rates can be multiple times lower but still higher than secured loans (car loans, real estate loans, mortgages). Terms (amount, rate, term, schedule, fees) vary widely among banks and lenders.

Loan insurance

Some banks may offer or require loan insurance as part of the loan contract. This can help protect against job loss, income disruption, health issues, or unexpected repayment difficulties. In such cases, clarify the additional cost and payout conditions.

Recommendations before deciding to borrow:

Don’t decide based on momentary emotion.

Borrow only after thorough consideration, not driven by emotions. Does the purpose stem from need (food, shelter, transport)? Emotion-driven spending decisions that can be postponed should be put off until payday. Consider alternatives.

Why?

If you can repay borrowed money monthly, you can save that amount without incurring additional debt. Savings generate capital income and increase financial independence (e.g., from salary). Savings protect you against income changes. Rushed borrowing may prove costly and regrettable.

Get multiple loan offers and compare them.

With many lenders, compare options to choose the most favourable. 

Determine the actual loan cost: beyond monthly payments, note the interest rate, total repayment amount, and APR (Annual Percentage Rate). Use quick loans only as a last resort.

Why?

Comparison lets you assess terms and choose the best (cheapest) option. Quick loans weaken future financial health.

Identify the actual cost of loan offers.

“€1 + 5% monthly” is not the actual cost, but promotional offers for new clients. If you are unable to repay after the promotional period, significantly higher fees and penalties will apply. Paying 5% of your monthly income as loan fees makes you a permanent income source for the lender.

Why?

Monthly fee payments (not principal repayment) become the lender’s steady revenue stream. 

Be vigilant and don’t enrich lenders unnecessarily.

Verify your actual repayment capacity.

Loan repayments should be <⅓ of your income (e.g., ≤€200 on €600 income). Ensure you can repay on time. Quick loan firms often offer extensions, but at significantly higher fees than those outlined in the original contract. ~20–33% of quick loan borrowers default due to snowballing debt and short terms (months).

Why?

Reduced income (e.g., job loss, illness, accident) may make repayments unaffordable. Late payments incur penalties, increasing costs. Payment defaults can block future loans for years, and bailiffs may seize assets (including bank accounts).

Clarify all loan-related terms.

Read the fine print; ask for clarifications if needed. Though lenders must explain terms, practically all (including banks) skip explaining multi-page general terms that may contain unexpected obligations.

Why? 

Lenders prioritise profit. Loan advisors aren’t impartial. Discuss borrowing with family. Every loan is a financial obligation – carefully consider your repayment options. Defaulting on a quick loan usually means higher costs (late fees + penalties).

For more on loans, visit:

minuraha.ee (Financial Inspectorate’s finance portal)

laenatargalt.ee (Consumer Authority’s loan advice portal)

Loan Comparison Table