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Experts from microfinance companies said that recently residents of large cities have been turning less and less for payday loans but in the regions, the number of clients is growing. Most of the borrowers work in the retail trade and services. Workers of industrial enterprises usually turn to MFOs to receive payday loans. US citizens prefer to take out a loan of up to $ 10,000. These are the so-called “payday loans”.
People take these loans for repairs, major purchases, and simply to cover daily and urgent expenses. Many take payday loans even though they already have at least one active loan open. However, MFO such as MoneyZap, analysts note that often such borrowers have a good credit history. They do not allow payday loans overdue. Representatives of credit organizations noted that recently the requirements for borrowers of payday loans have tightened. Their “credit files” are now being monitored more closely than before.
The main advantage of payday loans is the ability to quickly issue them with a minimum of documents. You can get a loan from an MFO within 20-30 minutes, and some companies offer to issue a microloan online. Unlike the process of applying for a loan at a bank, to obtain a loan from a microfinance organization, a client does not need to collect a set of documents and certificates confirming income. As a rule, a passport and a second identity document are enough. To transfer funds, you will need the details of a bank card issued in the name of the borrower. If the loan is issued at the MFO office, the money can be received in cash at the cash desk.
Another advantage of payday loans is the more loyal attitude of microfinance organizations to the borrower’s credit history. If there are minor delinquencies or other existing loans in a microloan, a borrower will most likely not be denied.
Like any other product in an MFI, payday loans are provided at a fairly high-interest rate. The lender includes in it the speed of registration, the risk of non-return, and many other factors. In addition, interest is calculated daily. Therefore, a loan should be issued only in case of emergency. Its very name seems to hint at this when there is not enough money to pay the salary for the shortest possible period. Some microfinance organizations offer shares according to which new borrowers can get the first microloan in the company at 0%. This can be beneficial and it is worth taking a closer look at the offers of various MFIs and comparing their conditions. However, you need to carefully study the conditions of the shares as everything is not as simple and good as it seems.
- fast registration;
- minimum required documents.
- High-interest rate.
When deciding on a payday loan, it is worth considering whether it is really necessary. Perhaps there are other options for solving financial problems. If you still have to arrange a loan, it is better to return the money to the lender as soon as possible to avoid delays.
The overwhelming majority of MFOs do not require any documents from the borrower, except for a passport including proof of income. This raises objective doubts that MFOs issue payday loans only to solvent clients with income. Also, “mystery shoppers” found out that all organizations are ready to issue a loan to a person with overdue loan payments as well as to retirees.
Still, half of the MFIs are ready to lend money to the unemployed. The standard on consumer protection of MFI services approved by the bank which in theory should not allow the issuance of money to those who cannot service a loan. In fact, this does not oblige companies to request the credit histories of borrowers. According to the law, such requests can only be made with the consent of the borrower.
A client can have two or three valid loans but if borrowers do not have any delays, then they can also receive a payday loan. More important than the number of loans is the indicator of the debt burden per person – the share of loan payments in the borrower’s income since this determines the amount of the loan. Loan payments should not exceed 35% of the client’s monthly salary. Otherwise, a borrower will be rejected by the MFI.
According to the basic standard of the MFO, before issuing payday loans, the lender is obliged to notify the citizen that his debts must be commensurate with income. Analysis of data from credit bureaus shows that at the end of 2017, the average debt burden of the borrower of MFOs decreased by 20% over two years. It is significantly lower than the average debt burden of the borrower of the bank. At the same time, the number of loaned borrowers of MFOs (with three or more loans) is less than 1% of the total number of borrowers.
Many companies working with online loans today have abandoned call-center operators since the entire process of drawing up an agreement takes place without communication between the parties. Thus, consumers receive up-to-date information on the terms of lending only when concluding an agreement. Only some of the MFO companies post a standard agreement with borrowers on the website, and the rest are ready to provide it personally to the borrower for review before signing. In some states, almost two-thirds of companies have already refused the “mystery shopper” a request to simply look at the agreement for registration of payday loans without giving any reason.
The rates of payday loans differ in the capital and regions. On average, their daily rate in Washington was 0.2-2% (up to 730% per annum), in the regions – 0.5-2.3% (up to 840% per annum). Differences in rates for different regions are possible and related to the competitive environment. Most often, the rate depends on the “quality” of the client: if lenders have information about a borrower, the credit history is decent, the payment activity is normal, then the chances of approving the application and getting a payday loan with a lower interest rate are higher.
Frank Glemstone – Frank is a graduate of the Master’s program in Economics Sciences. He has written numerous articles about personal finances and wealth. Working as the main author for MoneyZap he is now connecting with clients across the country, helping them achieve their financial and life goals.