Words that are commonly mentioned along with quick loans in news articles and debate articles are “expensive”, “unreasonable” and “sky-high interest rates”. Anyone who wants to claim that fast loans are not at all an expensive loan form really has a veritable wall of views to contradict. So, what is it like? Are quick loans expensive? And if so, exactly how expensive are they? In this article we are going to give some answers to the questions and also try to give a slightly more nuanced picture of reality than is reflected in the press and debate. We base ourselves on two common statements.
Claim: The effective interest rate is very high
The effective interest rate for a quick loan is often astronomical. It is a clear fact. However, it is not possible to say that all fast loans are expensive from this perspective. The person who is granted a loan does not have to pay the hundreds or thousands of percent in interest that the effective interest rate specifies. The reason is that effective interest rates are calculated as annual interest rates, while fast loans are repaid in a much shorter time than that.
Example 1: A lender offers fast loans of USD 5000 with USD 900 in cost for 30 days. The cost is 18% of the borrowed amount. However, the effective interest rate is as much as 649.13%.
Example 2: A lender offers a fast loan of USD 5000 with a repayment period of two months. The total cost for this will be USD 1400 or 28% of the loan amount. The effective interest rate? 613.50%
The effective interest rate for a fast loan is soaring, but the borrower does not pay that much.
Delay fees are very high
Anyone who is late with a loan payment, or any payment / invoice for that matter, will have to pay different fees for the delay. Delay fees, interest rates and collection fees are included in the first battery of fees a lender can charge. According to the general public, it seems that the extra costs for just a delayed fast loan would be significantly higher than what they are for example a missed invoice for a subscription. However, that is not at all true. The delay fees for quick loans are basically exactly the same as for all other types of payments.
It follows that delay fees are in fact statutory. The highest possible reminder fee is USD 60. In the same way, the collection fee is statutory and must not exceed USD 180. If a repayment plan is needed, the lender may charge a cost of USD 170.
But, the interest rate then? Under the Interest Act, a creditor, such as a lender in quick loans, can charge the applicable reference rate + 8% in case nothing else has been agreed. Unless otherwise agreed, the interest rate must be reasonable. There is a kind of lending practice around the fact that an interest rate of 2% per month can be considered reasonable and no player in fast loans goes over this.