The tricks of cheap loans

There are several companies, all over the world, dedicated to offer cheap loans to people. These kind of loans may be useful for people of low income that cannot afford huge loans (e.g 100,000 dollars to buy a house), and that may need some money to start a small business, as an initial money to be invested and for which a benefit return should be expected. The importance of these loans is that they offer the possibility to take very little amounts of money, like one thousand dollars, with no minimum required (even you may take, in some companies, two hundred dollars or so). But , as we say, not everything that shines is gold, and hereby there is an issue that sometimes is forgotten: the interest that we would pay, as customers, for this kind of loans. In Argentina, for example, there are some companies like “Efectivo ya”, “Credipaz” and many others, that offer the possibility of taking one thousand pesos for a loan. At what interest rate? Well, the payment plan offered is is not the best you could find in the market: eighteen installments of one hundred pesos each. the calculi is easy: you end up paying, in one year and a half, one thousand and eight hundred, instead of the first thousand that you asked for. So is it really convenient to take this cheap loan? Well, there are several discussions and opinions in here. Some people will say that it is more a take it or leave it thing: if you do not have the sufficient income to take higher loans, these cheap loans can be very useful for you to buy electronic devices for your house, for example, or to get your car fixed, buy a computer, and so on. the question is if it is really worth doing it, or if it is preferrable to sacrifice other things, make an effort, and buy those devices with your own savings. Obviously, sometimes this is impossible: if you want to start up a business and you need, for instance, five thousand dollars, a little amount of money but not that little for you to be saved, you may resort to a cheap loan, maybe payable in five years, at a 21 per cent per year of interest. Of course, in five years you will end up paying almost ten thousand dollars, but by that time your business should be properly running and giving benefits, thanks to that initial cheap loan that you took.

Is there another trick? Are there are other issues to look at? Unluckily, the answer is yes. And there is one main reason: suppose that you took a cheap loan at five years, with an interest of 21 per cent a year. You start a business, you invest the money and in two years time you have a little business running, and you decide that you don’t need the money anymore, as you are solvent enough to cover your debts and your payments of wages and material. So what is coherent to do? Go to the one who borrowed you the money and say: ‘Look, I will not be needing the money anymore, so I want to cancel my loan’. What will the answer of the company or bank be like? ‘Oh, that is impossible. The loan is only payable in the time agreed. So you will be tied up to the one who loaned you the money and no matter how much do you need the money or not, you will be attached to a terrible interest.

Do we mean by saying this that cheap loans should be looked at? Well not. They are, as every other business, a resource for some people who have not the possibility to take the money from somewhere else. Sometimes in cases of emergency it is also really needed. What some companies offer is the possibility to take these loans with only an ID (something that won’t happen in regular banks, in which they ask you for infinite papers, mortgages, titles of properties, etc.), and that is perfectly an opportunity for these people, as they can resort to the cheap loans and use the money at their discretion. It is, of course, a harsh decision, for as we said, you can be entitled to a long term contract that you cannot broke forewards, an agreement that cannot be ended before it was planned. On the other hand, it is possible to say that lots of people should be thankful for these cheap loans, as they allowed them to start small businesses that have then become own enterprises in which they are their own bosses, and where they hired employees and so.

As a conclusion, we can end up saying that to understand the essence of cheap loans we should first look at every element, and weigh them, so then we can draw to a conclusion and give a proper opinion. Prejudice is not useful here, the needs of people incapable of taking bigger loans are more important that the terrible interests that these companies of cheap loans impose.

In countries like Argentina, where there are hugh amounts of people needing these type of loans of money, the interest is very high, and this is approached by those who have money and want to borrow it. maybe a solution to make these interests low is to avoid taking loans, so as to make the demand for them go down, what would make the ones who offer the loans lower the interest rate. It is terrible that in one year and a half term you end up paying 80 per cent of the money that you chose to borrow. But again, this depends on your own needs, and on the emergency and particular situations in which you may be involved. It is on everyone to be able to make this kind of analysis. the discussion is open, and we hope to find more information and opinions on this very interesting topic.