What is microcredit and how does it work?
The field of granting small loans for a short period is actively developing today. Therefore, many people are interested in how microloans work, their advantages and disadvantages. On the one hand, microloans are a great opportunity to solve certain problems almost instantly. And on the other hand, the overpayment for such a privilege is quite high.
The essence of microcredits
Typically, microcredits are issued by microfinance organizations and a special law regulates their microfinance activities. Microfinance organizations have more freedom to set the conditions for granting loans, so they pay huge interest on each loan. At the same time, there are organizations focused on small business loans that issue funds on more loyal terms. Therefore, if you are interested in this type of loan, you must know about tribal lenders in https://cashspotusa.com/lenders/sov/ who provide it. The following types of microcredit can be distinguished in this market:
- Multi-day loans (for online purchases, etc.) transferred to electronic wallets;
- Loans of several weeks, transferred to wallets, to bank accounts and issued in cash;
- Small business loans granted for a period of up to one year.
Features and Benefits of Microloyears
Microcredits are an alternative to bank loans in the following cases:
- Money is urgently needed (within minutes or hours);
- A person with a bad credit history needs money;
- An unemployed person needs money.
Microloans for ordinary consumption are issued for a period of up to 31 days at a rate of 1 to 2% per day. If you are wondering what the percentage of microloans is, then doing some simple calculations we get around 30-60% per month and 360-720% per year. Unlike the bank (which now varies from 20 to 30% per year), these percentages seem quite outrageous. At the same time, their feasibility is easily explained by the target audience of these loans. The high interest rates are designed to compensate for the loss of MFIs due to a large number of defaults. If we speak positively about microloans, they have the following advantages for borrowers:
- Minimum verification of a potential borrower
- No involvement of the guarantors, no provision of guarantees, etc .;
- The possibility of obtaining a loan with a bad credit history;
- High speed of decision making and allocation of funds.
Nuances of using microcredits
There are some nuances that should be taken into account when using a financial instrument such as microcredit. Microloans are issued quickly and easily, which is why there is a temptation to take out a loan in situations where you could do without it. For example, taking microloans to buy tourist packages, gifts or simply to organize a vacation is not practical. The cost of loans is so high that even after a few weeks of using the money, the amount you owe will be much higher than what you took. At the same time, in situations where money is urgently needed, microcredits will come in handy.