The main difference is that loans are issued by banks, and payday loans are issued by legal entities with the appropriate license. The bank issuing the loan is a large financial institution that “works” with money in general. The bank is interested in a person’s income, his credit history, and guarantors. Payday lenders are almost online lending companies. The consumer is given a small amount at a large rate that needs to be returned. Microfinance organizations only care about their current solvency.
The bank solves problems with debtors through the legal system in order not to spoil the reputation and not to go beyond the law. Online lenders solve problems with debtors in any available way, including through collectors.
The bank has strict requirements for borrowers, while microfinance organizations are not afraid to take risks and give money to those who may not return it. At the same time, banks have the right to lend any amount, while microfinance organizations are legally limited to several thousand dollars.
Advantages and disadvantages of payday loans
The payday loan is issued quickly, the money is given to everyone who has turned 18. The funds can be returned without paying extra interest. According to the legislation, the borrower has the right to return payday loan within 30 days, paying interest only for the period of use of the money.
The disadvantages of microfinance organizations include the high cost of borrowed money. 1-2% per day is 365% per annum. Banks provide consumer loans at 10-30% per annum. Another disadvantage is the large fines. The maximum amount of the fine + penalty for delay may not exceed 2 times the size of the loan.
Cash advance is transferred to a bank card, in cash, secured by transport (a payday loan secured by real estate is prohibited at the legislative level), on an electronic wallet, as well as for business. Loans to the card are the most common option, money is transferred quickly, the amounts are small, and the requirements for borrowers, in addition to age, are extremely rare. The main disadvantage is a large percentage of up to 1-2% per day. A mini-loan secured is the most advantageous offer, the amounts can reach $5,000, and the interest can be up to 0.05% per day.
Rules that limit microfinance organizations:
- the maximum amount is $2,500;
- loans can be issued only in national currency;
- if the loan is issued for a period of less than a year, the maximum rate that the MFI can set is 1% per day;
- only guarantors and vehicles can be used as collateral, a loan secured by real estate is prohibited;
- the maximum amount of the fine and penalty for delay may not exceed twice the loan size;
- payday lending company must have a license for its activities.
Let’s answer the frequently asked question: “Is it possible to cheat an online payday lender?” It is impossible to cheat a micro-credit company. When you take out cash advance, you sign a agreement according to which this money must be returned. This also applies to online loans – the legislation prescribes a clause according to which, when concluding an agreement, you can use an electronic signature (a code from a verification SMS), which is equivalent to an ordinary signature.
Tags: finance, loan, payday loans