In September, as is well known, an interest rate ceiling will be introduced for so-called high-cost loans, what in everyday life is called fast loans, sms loans and online loans, but already the industry is in full swing of changing its loans.
What is happening is that the really small loans of any thousand dollars are more or less disappearing, as are the really short maturities of just a few weeks or a month. In addition, several lenders have begun offering flexible loans with a certain credit limit instead of regular quick loans.
The reason for this is that the upcoming interest rate cap of 40% (as well as the reference rate) in effective interest rates means that really small loans with short maturities will not be profitable. For example, if a credit company would lend USD 1,000 in a month, the cost of borrowing would only be about USD 33 and no credit company could survive on it.
Probably the majority of today’s high-end mortgage companies will remain, but their products will not look the same as before. Alright, there are already quite a few lenders already today who can handle the interest rate ceiling, but far from everyone. So what will their credits look like? How will credit change? Well, there are two different strategies that we at WiseOne Credit have already seen:
Quick loans are getting bigger and have longer maturities
The smallest quick loans of USD 500 and a few thousand notes disappear. We will see more sms and fast loans with a minimum loan amount of USD 5000 or 10000, in addition, the lenders’ maximum loan amount will be increased. It will also be common for the shortest maturity to be 1 year, but probably some lenders will offer maybe 6 months maturity as well. We have made these assumptions in the past and now that the industry is changing its products it has proved to be correct. Let’s give you an example.
BuzzMind Finance AB recently launched the brand BuzzMind Private Loan, which offers loans of USD 10000 – 100,000 with a repayment period of 1 – 7 years. Despite the size of the loan, it is actually a fast loan as the borrower can get it already the same day if the application is made before. 13:15 and banking day. BuzzMind Finance also owns the Vibelend plus brand, which offers online loans, but these loans have an effective interest rate that is much higher than 40%.
That is why BuzzMind Finance AB launched BuzzMind Private Loans whose loans will meet the new requirements. In all likelihood, BuzzMind Private Loans will be their big investment this fall and what will happen to Vibelend plus we do not know yet. Either Vibelend plus will go to the grave or they will have to change the interest rate setting and maybe even the loan amount.
In a way, these changes are good because fast loans will have a lower interest rate, but unfortunately, it will also make a lot of borrowers borrow more than they otherwise would. In addition, the total loan cost does not necessarily have to be lower since the maturities are longer.
Sms loans are converted into online credits
The other strategy used by sms companies is to remove the fixed maturities and the minimum loan amounts and convert their sms loans to online loans. Instead of lending a certain amount for a certain predetermined maturity, the customer receives a credit limit and can then repay it at his own rate. We have seen several examples of this.
The best example of this is ViaMoney. Until September last year they offered sms loans of USD 500 – 10000 with a repayment period of 1 – 3 months, but that changed the same month. They raised the ceiling to USD 12,000 and offered a flexible refund. You in June they once again changed their product. Now you can not borrow less than USD 5000 but you can borrow up to USD 50000. The effective interest rate was substantially lowered in the same vein so that they would eventually copy with the interest rate ceiling. Today, ViaMoney’s credit has an effective interest rate of about 43 – 48%, but it is guaranteed to be lowered further in September so that it falls below the ceiling.
Also changes here at WiseOne Credit
We expect significantly more changes during the summer as there are still plenty of lenders who have far too high effective interest rates. Of course, this will also contribute to major changes here at WiseOne Credit. Some lenders offering high-interest loans will probably disappear from our offering, but new brands are likely to emerge, BuzzMind Private Loan is one example. Some lenders may change their name, while others will only change their products. You will thus find several large fast loans and more online credits with us during the summer.
We will do everything possible to keep this page updated with the most accurate information possible and to update our comparisons as quickly as we can, as the industry changes. We are well prepared.