Why do people take microloans?
Posted: Tue Feb 18, 2025 10:29 am
short terms. On average, microloans are issued for a period of 7 to 90 days, but you can find programs for a year or more;
ease of registration. MFIs can issue loans online without the borrower visiting the office. Banks offer a similar service, but only for current clients whose documents are already in the database. And in MFIs, it is possible to get a microloan using a passport scan or even passport data. Such a scheme opens up huge opportunities for fraudsters.
What does debt consist of?
As in a bank, the debt includes three components:
principal debt;
interest;
fines and penalties in case of delay.
Although the law regulates interest rates and fines for microloans, they can still be significantly higher than for banking products. It is extremely unprofitable to be late with payments on microloans.
Here are the three most common situations in which borrowers gansu mobile number database prefer to go to an MFI rather than a bank:
High debt load. By law, a bank cannot approve a loan application if the potential borrower spends more than 50% of their income on loan payments. MFIs do not have such restrictions, so they issue money to clients with a high financial burden.
Bad credit history. Before approving an application, the bank checks your credit history. If you often miss payments or have outstanding debts, you will be rejected. Microfinance organizations often turn a blind eye to bad credit history.
Short-term financial difficulties . When you need to borrow a small amount until payday, some people don’t see the point in going to a bank. They go to an MFO, apply for a microloan and pay it off within 1-2 weeks.
Because microloans are easy to apply for, clients often turn to them in desperate situations. They take out several microloans because they consider it the only way to solve financial difficulties. But in reality, the difficulties only accumulate, because such borrowers often miss payments and are forced to repay the debt along with fines and penalties. And when there is absolutely nothing to pay off the debt, the defaulter has to contact collectors and bailiffs.
ease of registration. MFIs can issue loans online without the borrower visiting the office. Banks offer a similar service, but only for current clients whose documents are already in the database. And in MFIs, it is possible to get a microloan using a passport scan or even passport data. Such a scheme opens up huge opportunities for fraudsters.
What does debt consist of?
As in a bank, the debt includes three components:
principal debt;
interest;
fines and penalties in case of delay.
Although the law regulates interest rates and fines for microloans, they can still be significantly higher than for banking products. It is extremely unprofitable to be late with payments on microloans.
Here are the three most common situations in which borrowers gansu mobile number database prefer to go to an MFI rather than a bank:
High debt load. By law, a bank cannot approve a loan application if the potential borrower spends more than 50% of their income on loan payments. MFIs do not have such restrictions, so they issue money to clients with a high financial burden.
Bad credit history. Before approving an application, the bank checks your credit history. If you often miss payments or have outstanding debts, you will be rejected. Microfinance organizations often turn a blind eye to bad credit history.
Short-term financial difficulties . When you need to borrow a small amount until payday, some people don’t see the point in going to a bank. They go to an MFO, apply for a microloan and pay it off within 1-2 weeks.
Because microloans are easy to apply for, clients often turn to them in desperate situations. They take out several microloans because they consider it the only way to solve financial difficulties. But in reality, the difficulties only accumulate, because such borrowers often miss payments and are forced to repay the debt along with fines and penalties. And when there is absolutely nothing to pay off the debt, the defaulter has to contact collectors and bailiffs.