Microloan offices offering payday loans with good terms can be found on every street. Their services are quite extensive: from cash disbursements to card loans on an online application. Many have long become clients of these organizations to apply for a 24/7 payday loan. But how does the microfinance world work? And what do you need to know when signing a contract? Payday loans are now one of the smart ways to get rid of a difficult financial situation.
What Are MFIs and What Do They Do?
Suppose you find yourself in a difficult situation: due to the pandemic, your income has dropped sharply. The salary was delayed for the second week and there was nothing to live on. Borrowing from friends did not work. We didn’t want to take a loan as we don’t need too much. Even with irregular payments at work, the application would not be approved. Therefore, it is worth contacting an MFI like MoneyZap.com to get the long-awaited payday loan.
What is an MFI? Imagine a neighbor from whom you can always borrow money. He is not particularly interested in your level of income and reliability but he is happy to lend you money “to paycheck.” The only condition is a large percentage.
How Do Microfinance Firms Work?
Issue Payday Loans to Citizens And Small Businesses
Companies are located both in large cities and in sparsely populated areas where there is only one bank branch or none at all. It is much easier and faster to issue a small debt. Often it is practically the only way to get urgently needed money in the form of a payday loan.
Give Small Amounts for a Short Term
You can borrow a million dollars since the regulations of the organizations allow this. As a rule, the volume does not exceed two salaries and the repayment period for the received payday loan is about two months.
Set Increased Interest Rate
Interest rates are several times higher than banking indicators. Often this is 1% per day which adds up to 365% per annum.
The Client’s Solvency Is Not Very Strictly Evaluated
For this reason, it is very easy to take money from an MFI. It is not necessary to prove your income as it is necessary for the bank. At the same time, a microfinance organization is just a general concept. To simplify control over activities, in 2017 they were divided into microcredit and microfinance companies.
The Ministry of Finance oversees the work of MFIs in the same way as they do any financial structure. Therefore, the basic principle of division is based on the amount of money involved and some differences in the organization of activities. IFC is a microfinance company that is a larger organization. Its authorized capital must be at least and moreover, IFC has extended activity.
What do they do?
- accept funds from legal entities as well as from individual depositors;
- issue microloans;
- issue bonds.
In connection with attracting funds from individuals and legal entities, the bank makes increased demands on such organizations. Also, annual audits of their activities are carried out.
Bank advice: Think carefully about the risks before investing in an MFI. They are not insured by the DIA like ordinary bank deposits. Therefore, you will not be able to get your money back if the company loses it. It is better to trust your funds to trusted banking organizations.
MCC (microcredit company) is more limited in its capabilities. The word “credit” in the name means that the company only issues money. Unlike IFC, microcredit firms do not have the right to attract third-party funds. They operate only at the expense of the company’s fund and owners. Moreover, the size of their capital has not been determined.
The functions of the MCC and the IFC need to be known in order not to stumble upon fraudsters who allegedly offer payday loans on good repayment terms. Despite many laws, dishonest entrepreneurs still operate freely under the guise of legal reasons.
MFIs and Banks: What’s the Difference?
If the difference between finance and credit companies is clear, then how are they different from banks? If it is easy to get a loan from an MFI, then why are banks complicating this process so much? In reality, one can find even more discrepancies in their activity since the bank is engaged not only in the preparation of payday loans.
Loans Before Payday and Credit Ratings
Most payday lenders do not check your credit rating as this is not the most important criterion for a loan. Stable employment is the number one issue for payday lenders. As a result, bad credit payday loans are common. However, if you are unable to repay the loan on time or negotiate other payments with your lender, you may be charged fees and this could affect your credit rating.
How to Get a Payday Loan?
It is a simple, safe, and fast process at the same time. Just fill out the online form and then your contact information will be shown to as many creditors as possible electronically. If approved by the credit company, you will be contacted by the lender who wants to provide you with a loan. The whole process of filling out the form and getting a connection takes about 5 minutes. You will take a few minutes to review the terms of your loan agreement before it is finalized. In almost all cases, cash will be deposited into your bank account within business hours.
Benefits of Payday Loans
Some people say that online payday loans are bad but such loans have many advantages, here are just a few to name:
- They help anyone with a lack of funds;
- They will help you with unexpected expenses such as car loans, medicine, utilities, etc.;
- They are quickly available so you can get cash quickly when you need it;
- You can get it even if you have bad credit and no other options;
- They are chargeable so if you return them in time they might be a good option.
Dangers of Getting Payday Loans
There is a danger of online payday loans if not used properly. The biggest danger is that you can get caught in a loan prolongation fee or late payment. As a result, the cost of the loan will become very high. Online payday loans are for emergencies but not to get money to spend on anything. There are no restrictions on the use of this loan. Still, you should be careful and only get it when you have no other way to get the immediate money you need.
Frank Glemstone – Frank is a graduate of the Master’s program in Economics Sciences. He has written numerous articles about personal finances and wealth. Working as the main author for MoneyZap he is now connecting with clients across the country, helping them achieve their financial and life goals.