Pros and cons of SMS loans
A few years ago, what was called SMS loans were introduced in the Swedish loan market. What exactly is SMS loan? SMS loans are exactly what the name refers to – they are loans you receive through SMS (messages) via your mobile phone. Put another way, it’s mobile loans.
SMS loans are a new and “modern” form of consumer loan, and it falls into the category of micro loans because you can only borrow small sums, usually up to $ 5,000 per SMS. The idea behind SMS loans is that it is a new and convenient way to borrow money. After all, most of us always have access to a mobile phone. In Norway, however, it is not legal to sign loan agreements in this way. Therefore, there are no pure SMS loans here. Instead, there are many alternatives, so-called micro loans.
Benefits of SMS loans
The biggest advantage of SMS loan alternatives is that it is a convenient and easy way to borrow money. The vast majority of us always have access to the internet, either via a mobile phone or a PC. In most cases, the loan process does not require much more than filling out a form. You also don’t have to be home to apply for the loan. For most of us who need to borrow money for a variety of reasons, there is hardly a more practical way to apply. In a busy and hectic day, everything that is simple and fast gold is worth it.
Limited loan amount
The other advantage of alternatives to SMS loans is that it is a micro loan. Since the amount you can take out in a loan is limited, you can therefore not borrow more than what you actually need. If we have access to borrow large sums of money when we need a little extra to cover various expenses or projects, the vast majority of us tend to borrow more than we really need. This rarely pays off, and this is a problem you avoid with alternatives to SMS loans.
The most common uses for SMS loan alternatives are low, unforeseen expenses such as replacing the refrigerator, the washing machine suddenly ceasing to work or the car needing some new parts. Alternatives to SMS loans can also be used if you have a lot of bills that you are struggling to pay for a month. Although such loans fall under the consumer category “micro-loans”, they are a relatively flexible loan.
Alternatives to SMS loans work so that you submit an application, which is then reviewed by the lender. If you get the loan granted, thanks to automatic processes, it will not take too long before the money is in your checking account. In other words, you don’t have to wait for several business days before you can start spending your money.
Disadvantages of SMS loan
The disadvantages of alternatives to SMS loans are that it is very expensive and expensive for the people who take up this form of loan. The reason why these loans are more expensive than other types of loans is primarily a very high interest rate. An example of which alternatives to SMS loans quickly become very expensive for the borrower are:
You borrow $ 1,000 over a 30 day period. The interest rate on alternatives to SMS loans is very high compared to other consumer loans. The annual effective interest rate can rise as much as 9,245%. This means that in addition to having to repay the 1,000-note that you borrowed, you also have to pay almost $ 500 extra just in interest.
The disadvantages of the alternatives to SMS loans are considered so extensive that the Norwegian Consumer Ombudsman repeatedly tries to counteract that these loans establish themselves as a large and real lender in the Norwegian loan market. The concern lies in the fact that alternatives to SMS loans can put people in heavy debt or other difficult financial situations. This is because many people may not be aware of the extra cost of interest, and that small loans may not be given the same priority over larger loans, and thus they accumulate.
For easy borrowing
Another disadvantage is that it is very easy for anyone to take up alternatives to SMS loans. The search process consists of a simple form online, and since it is so easy to borrow money, not everyone is familiar with the terms of such loans. A trip to the city with friends can quickly become very expensive and can create a negative impact on your everyday economy for a long time after you took out the loan. The Norwegian Consumer Area is also particularly concerned that such loans are specifically aimed at young people, who do not necessarily have as good experience in taking out loans.
A third disadvantage of alternatives to SMS loans is that several finance experts and other well-established lenders and banks advise consumers not to take out such loans. That’s because it is far too expensive with interest rates at a soaring, non-traditional level. You also do not get the same help if you encounter problems along the way or struggle to repay the loan.