Did you know that credit cards are not the only way to get money? A loan is a small amount borrowed and paid back 1-5 weeks later with interest.
There are three types of loans:
- PDL loans (Payday Loans) are payday borrowings, which you can discuss.
- POS — these are loans made at the point of sale: stores, cell phone offices, construction supermarkets, etc.
- Installments are long-term debts. They are granted for several months to several years and are repaid in equal installments.
We are talking about loans. The name already contains the essence — these are transactions for small amounts and a short term. Microcredit deals have some differences compared to bank loans:
- Term. A loan is always drawn up for a short period (1-5 weeks), while a bank loan is for at least three months.
- Amount. A bank loan can be taken out for a large sum, while a loan is for a small sum.
- Interest rate. For a loan, it is up to 1 % per day.
- List of documents. It would be best if you only had a passport to apply for a loan, but the loan will require more documents.
- The speed of processing. You can get a loan online instantly, while banks can take up to several days to process loan applications.
How Many People Take Micro Loans and for What Purposes
The topic of loans (Payday Loans) is more than relevant now. It used to be believed that people in difficult life situations take loans. Today the situation has changed dramatically. About 40% of Lender clients are 25-36 years old. It is the working-age population that enjoys cash advance apps.
60% of people borrow money to buy a cell phone, clothes, or jewelry in large cities. Such borrowers do not have financial difficulties.
In small towns, the situation is a little different — there are other purposes: repayment of credit, buying necessities. But the most popular reasons to get a loan are below:
What Are Loans for?
Based on the above, the clients of microcredit companies are relatively prosperous people with stable jobs, often without an acute need for money.
The demand and popularity of loans are related to their accessibility. For example, it is easier and faster to apply for a loan than a credit card from a bank.
In the PDL segment, there are no strict limitations on the amount and term. Typically, these deals are for up to $1,500 and up to two weeks. The state regulates the rate and overpayments. It is to get fewer people into debt.
#1 Documents to Apply
A passport is always required to apply for a loan. However, in addition to identification, some lenders ask to present:
- a driver’s license,
- certificate of income.
Many microcredit institutions will give you money with just your passport. However, if you can not provide other documents, look for a suitable option where you only need an ID.
#2 Borrower’s Age
The age of the borrower can be 18 years old. Some microcredit companies refuse pensioners of advanced age. But such cases are rare. The lender’s logic is simple: a pensioner has a permanent source of income in the form of social security, so he will be able to pay back the loan.
What Is the Procedure for Getting a Loan?
To get a loan, you need to apply online or in the office of a microcredit organization. Even people living in small towns, where there are no branches of financial institutions, can apply online.
#1 Office Processing
To apply for a loan at the office, you need to come with the documents and use them. They will check your passport, ask you to sign an agreement, and agree to process personal data. Sometimes the money is given on the same day. Sometimes you have to wait a little longer.
#2 Online processing
It is much more interesting to register a loan online — “in one click,” as they like to write in advertising. Any smartphone, computer, or tablet with an internet connection will be suitable for receiving money. The procedure, in this case, is as follows:
- Registration — in the electronic questionnaire, you need to specify the last name first and surname, registration address, passport number, mobile number.
- Attaching to the application form a scan-copy or photo of passport (not always required).
- Phone number confirmation: after registration, an SMS code will be sent to your mobile phone, and you will need to enter it in the particular field.
- Applying — you need to specify the desired amount and term of the loan.
- The system sends an application confirmation, which you receive via SMS with a code.
- Withdrawal options.
- Crediting the total amount.
Where Can I Get a Loan?
Most lenders allow the customer to choose where to get the money:
- Bank card.
- Bank account.
What Criteria Lenders Use to Decide Whether to Loan Money to Clients
After a client applies, the microcredit company considers the application and decides whether to borrow money. Usually, a computer program reviews the application.
If the application is not automatically approved, it goes to the specialist of the microcredit company. In most cases, automatic processing of the application received from the client is enough. It means that the lender will transfer money to the person within a few minutes.
This process is called scoring. It is needed to assess the risk of a borrower defaulting. It is what makes it possible to get instant money immediately after a person has applied.
What is the reason for this speed of decision-making?
A proprietary scoring system is one of the advantages of lenders. Analysts in each company develop algorithms that allow a computer program to assess the risk of borrower default in a few minutes very accurately.
Consider many factors. Unfortunately, you have to take into consideration the trade secret of each company.
Therefore, we have made only a rough list:
- age, gender, marital status, presence of children;
- whether the person has ever applied for a loan before;
- credit history (requesting information from the Bureau of Credit Histories costs money, so we ask for the optimum amount of data, not complete);
- the model of the device from which you can apply (screen resolution, operating system);
- speed of application (if a person thinks for a long time when filling out the application, it may alert the lender);
- a mobile operator, which provides communication services.
Separately, this information can tell almost nothing about the client. But if you compare the data, such as marital status, the number of children, and income, we can draw a portrait of the borrower. If the latter is over 60 years old and uses an iPhone, it can be not comforting and raise questions.
Why Do Lenders Refuse Customers Several Times Less Often Than Banks?
Because of scoring mechanisms, microcredit companies make decisions faster than banks and refuse people several times less often. According to the National Rating Agency, lender refuses in 10-15% of cases. For banks, these figures are several times higher.
Often clients of microcredit organizations are just people who banks have rejected for a variety of reasons. For example, someone can not present a certificate of income.
Someone employed unofficially, someone is already paying off the loan. Accordingly, the bank does not want to risk increasing the debt burden on the person. And for microcredit institutions, all these problems become unimportant.
Clients pay interest for affordability and efficiency. The high overpayment is designed to cover the risks in issuing funds to everyone. That is why the terms on loans are not as favorable as on bank loans.