Microcredits: Fast Money Loan and Consequences
Microcredits constitute a financial product that offers the opportunity to get fast money. These fast credits, therefore, are a derivation of the traditional loan system.
Indeed, microcredits are designed for a sector of the population that, due to its scarcity of resources, cannot afford access to conventional loans.
Before making decisions lightly, it is important to take into account a series of advantages and disadvantages associated with microcredits.
Advantages and disadvantages of Microcredits
Among the first, the following stand out:
- Speed. Microcredits can be used to get out of trouble (come to the end of the month, pay a fine …). They are an interesting option to get liquidity and face an urgent payment.
- Flexibility. It is possible to return the loan before the due date (usually thirty days) or request extensions, in case you cannot pay on the date indicated.
- Freedom. The funds received can be spent without giving any explanation about the project.
- Confidentiality A point very similar to the previous one. It will keep secret about the data. Not surprisingly, the Organic Law on Protection of Personal Data (LOPD) governs.
- No requirements. You just have to reside in Spain, be of legal age and have a mobile phone and bank account. There are, even, for those who do not have payroll or free (first promotional offer).
Some disadvantages should also be assessed
- High average cost of hiring. The interest analyzed exceeds 1,000% APR, which represents a really high commission. It is a concept that depends on the amount and the term of return. Broadly speaking, the average daily cost is set between 0.8 and 1% APR.
The cost of fast money
In summary, in exchange for the speed and the risk of default (due to the low demand for guarantees), high fees and interest are imposed.
- High interest rate. It involves another risk that can be incurred. Chaining the demand for fast loans can degenerate into a spiral of requests for more microcredits to pay the interest of the previous ones (for example, 60 euros of interest for a loan of 300 euros, which must be repaid in thirty days).
The explanatory factors of these particular interest rates are the cost of funds, operating expenses and granting of bad loans and profits.
- Chronic indebtedness Related to the previous disadvantage. The use of extensions, in fact, also implies paying high interest for late payment. Bankruptcy and seizure of assets would be the last fatal consequences.
In short, microcredits are a valid option to save exceptional or extraordinary complications. If you resort to them for a whim or in a general way and you have acceptable financial conditions, you have to take into account financial products that offer conditions that can compensate more.