Small loan providers are more visible in the media every year. However, some of the micro-loans may cost the applicant quite expensive. Does it pay off such a loan, and which is the best? We will advise you on how to navigate these loans.
“Money on your account immediately, no fees, no liability, just think and up to 10,000 USD in your bank account, faster than from the genie of the bottle” Similar buzz to the Czech nation literally everywhere. Recently I was unlucky and saw one ad block on TV. It took about 20 minutes (which seems to me to be criminal or at least definitely inhuman) and besides the weak-minded ads for cleaning products, I registered 3 shots for financial products.
Refinancing is replaced by micro-loans
The total share of loan advertising has been rising in my opinion since 2011 or 2012, when the economic crisis has steadily ended in more or less stable states and interest rates went down to revitalize the economy. At that time, however, it was primarily advertisements for refinancing mortgages or ordinary consumer loans. This trend seems to have subsided in the last year, and micro-loans are beginning to enjoy their 15 minutes of fame.
Their fame will probably never touch the stars, because, as I said in the last post, our state apparatus intends to significantly reduce their number and tighten the entry of new providers to the market. We are talking about this year, so with some luck we will see legislative changes sometime in the next 3 years.
Small loans for all
Microloans, or payday loans, as Google can find them, are not new to the financial markets. Of course, they have a strong presence in America, where marketing companies are so capable that they convinced the nation over 50 years ago that it was actually okay to live in a permanent credit card debt.
In the Czech Republic, the first micro-loans started to appear only after 2000. The first one was the Finnish company Serratum , so you can sometimes also come across the name “Finnish loans”. At present, most of these companies are made up of enterprising Czechs who want to shake some duck from the already over-indebted lower middle class.
The idea of payday loans is not inherently bad. One quickly gets a few thousand, preferably without visiting a branch, which will pay off in a few weeks. Only a small fee is payable. However, reality is a bit different.
Comparison of payday loans
Most online pseu-personal finance experts will tell you that the basic figure for comparing loans is the annual percentage rate of charge (APR). Everyone is talking about it, but I don’t think anyone really understands what it means. Mathematically, however, this is calculated as the percentage rate of return of the lender. And thanks to the calculation methodology, this indicator is useful as a sleigh in summer for microloans. It’s nice to have them, but you don’t really use them.
To believe me, I give one real example. Try to guess how much the client will overpay for a loan with this APR:
Specific numbers can be found at the end of the paper?
So how do you compare loans? First of all, you get the best cost comparison for microloans by comparing cartoons. That’s the only thing you actually pay. I have selected some of the most visible micro-loans on our market for you.
The loan amount is 4900 with a maturity of 30 days.
loan amount is 4900 with a maturity of 30 days." />
As you can see, the whole market is financially clearly rolled by the Japanese loan, which has fees almost up to 10 times lower than other loans. This originally student loan has kept the low costs it originally offered and today has no competition in the market.
It is also necessary to look into the business conditions
In addition to the absolute values, it is also necessary to look at the other conditions before arranging the micro-loan. For example, whether registration on the website is required or whether it is necessary to send an identification crown from your current account. However, these are just the little things that delay the obtaining of a loan rather than hitting your wallet.
A much more important factor is what will happen when you do not repay the loan on time. Each micro-loan offers the possibility to extend the maturity period. As a rule, a fee of several hundred crowns is paid and the loan is automatically extended by a week or a month. This process can be repeated several times in succession for some loans. The advantage is that one avoids sanctions or enforcement agencies.
The Japanese loan is also an exception here. It also offers the possibility of extending the loan, but the person instead of the fee repays a certain portion of the loan. Which has two great advantages. Firstly, you get more time to raise money, and secondly, you lower your security, so you pay less.
The last thing you should be careful about before arranging a loan is the arbitration clause. It says that in the case of a legal dispute, the selected person will decide on the outcome of the proceedings by the lender and not the administrative court. So obviously you don’t want that.
Dude to the end
Loan parameters with APR 128 330 558 031 338 000.00%:
- Loan amount: USD 1,000
- Maturity: 1 day
- Loan fee: 100 USD