Three years ago, we wrote the article “Should there be warning texts on fast loans?” Where we told about two students at the Stockholm School of Economics who wrote a bachelor’s thesis that examined whether a warning text would have an effect. The answer was yes and the conclusion was reached as follows:
“People in post-secondary age up to 25 years show a significant difference in attitude towards a promotional fast loan depending on whether or not the commercial shown has had a warning text.”
Worth noting is that legislative changes regarding fast loans already have legal force, which means that the interest rate is already limited to the maximum annual interest rate 40% + the reference rate (-0.5%) but a maximum cost of max 100% of the loan amount including reminder fees.
Last but not least, what was actually the most dangerous part of the scheme has already been eliminated. Something that few seem to understand or even care about: the extensions.
The reason for the high cost of SMS loans
The allure to extensions rather than installments was the single biggest reason for the problems escalating. With the extension, the customer continued to pay high interest but no amortization. Adding a non-existent interest rate ceiling and a number of extensions that were not regulated by law, you understand that this obviously created a business model that was clearly destructive for borrowers who already had it badly off.
The companies could take a much greater risk as these extensions generated large revenue compared to ordinary loans. The extensions laid the foundation for the problems – not that the loans, which were extended in 30 days, had a high initial cost. A high initial cost was never really the real problem, although it was expensive. Ordinary loans have a setup fee instead, right? The problem was mainly the business model with extensions.
The cost of small loans is hardly extreme
Now this is definitely not an article that thinks it is ridiculous for warning texts. Rather, it is an article that once again strives to shed light on the problems that were and what was actually done.
The Consumer Agency now says this. This is the law : “The maturity of credit will now only be extended once. ”
Once. With a maximum interest rate of 39.5%.
An account credit that uses this maximum interest rate – without fees – is among other things Ferratum. Translated to monthly interest, the interest rate is 3.3%. Effective interest rate 47.64%.
You therefore pay $ 33 in cost to borrow $ 1000 for 30 days in a possible emergency but necessary situation where no alternatives may be available. Would you take this deal? Yes – you should. Don’t come and say otherwise. And there would be no problem or minimum if it solved the problem. Provided you have an income. I’m pretty sure.
It could be said that a situation most likely would not arise that resembles the heading that DN chooses to put in the SMS-panic-Tourettes which is so characteristic of journalists who come in contact with the word SMS or fast loan:
One should have respect for loans and their costs as well as risks
We do not oppose the red warning triangle (implementation has already begun). It does not hurt to occasionally stop and think and maybe even learn something along the way. Maybe it would sometimes be an idea to notice the positive changes in the law that have already come into effect and have an effect before the pens start to glow?