The small loans called SMS loans came to Sweden around 2006 and quickly became a success. Which is not directly surprising since it is a very easy way to get some extra money when such a need exists. Unfortunately, many borrowers over the years have not really thought about before they borrowed but have put themselves in financial difficulties due to these loans.
From the beginning, it was the question of quite small loans it was possible to obtain. In the first few years it was only possible to borrow up to $ 3000. Often it was then also required that a borrower had taken out a smaller loan and made repayments for this loan before it was possible to borrow the maximum amount. This can be compared to how it is now where there are lenders where it is possible to get a loan of $ 25,000.
When the lenders started with larger sums a few years ago, they also realized that this with the maturity was something to look at. Initially, it was only 30 days before the money was repaid. Which doesn’t work so well when there is more money being borrowed. Paying back for example $ 10,000 plus interest and fees in just one repayment is quite tough. Therefore, it is now possible to borrow up to 90 days from several lenders instead. 90-day loans are repaid in three installments, which makes the cost much less per month, the disadvantage is that the money is borrowed for a longer period of time and thus the total price is higher.
It should also be said that loans have begun to emerge that extend even further. We talk about maturities up to about 2 years where you can choose exactly how many months it should be. However, here we are really starting to get to the limit of what is really a micro loan. Historically, this has been short-term loans, which these loans are not really the same way. It is probably more the question of short and small private loans.
One development I like is this with application code. From the beginning, almost all lenders used this as it was a good way for the borrower to identify themselves. But this code also cost money to obtain, ranging from 25 up to $ 50. Which would have been okay if it had been included in the price and you had been guaranteed to be approved on an application. Which of course it is impossible to say in advance why many over the years have sent SMS to get codes that they have then used and have been denied. Is a bit sad to pay $ 50 for a code that then gives nothing at all. Therefore, it is very positive that most lenders do not use any such codes, but it is for example Bank ID used to identify the borrower. The chances have not increased to be approved but it no longer needs to cost money to be denied.
The name of the loan
There is still talk in the media etc. about SMS loans most of the time. This is a word that has been around since the beginning when it was often just the phone used to borrow money. In this way, it is not really any longer as there are actually quite a few lenders offering loans that are only obtained using the phone. By default, a form is filled in on their website. Which, in fact, is clearly smoother than keeping up with a text message that should be written in a certain way.
However, the name still hangs on even though it is actually better to call it a micro loan or something similar. SMS loans are only if the phone is involved. Micro loans are the word that fits better as it covers all the ways to apply for the loan.
The future of micro loans / SMS loans
If you ask me, there will probably be a fairly large market for these loans over the next few years. What is likely to happen is that the lenders who still live on loans up to $ 3000 and where small sums need to be borrowed will first be forced to change. If they do not agree, there will soon be no one who wants to borrow money from them.
This with flexible maturities is also good. There are some loan institutions that give customers the choice to basically decide for themselves how many days the loan should be on, within the interval that the basic rules say. Thus, a person who only needs the money for 5 days can also borrow such a short time and someone who needs 45 days can also do so. The price differs quite sharply as it becomes more expensive for every day that goes by.
When it comes to prices, it will probably happen quite a lot too. A few years ago, there were lenders who charged extreme prices compared to the cheapest ones. We are talking here about prices that customers are at 5 times as much and then it is for exactly the same product. This is how I expect it to not work in the future. Sites like this, for example, show quite easily what the differences are and who wants to borrow from someone who takes more money?
However, what is perhaps most important of all is the pressure that comes from the authorities. They have long been dissatisfied with how the credit tests are carried out or in some cases not at all. More accurate credit checks should, of course, lead to fewer borrowers getting into serious financial problems because they cannot repay the loan or loans. I strongly hope for this so that there will not be as many cases at Kronofogden in the future as are derived from micro loans.