Longer payment times for short loans make them more expensive.

In recent months, many of the leading sms companies have introduced 61 days as the shortest possible term for their sms loans. The reason is mainly that it is now not allowed to advertise for monthly loans in the search engine Net search results. Another reason is that there are reasons to assume that new legislation will require lenders to offer borrowers longer repayment periods.

The cost of a loan is largely determined by the duration of the loan. The interest rate is, after all, capitalized on the remaining debt at each interest opportunity. The question then is what applies if the term of a sms loan is extended from 30 to 61 days?

Sms loans become more expensive

Sms loans become more expensive

A few months after the leading sms mortgage companies extended the shortest possible term by 31 days, from 30 to 61 days, it is clear that the new provider has made these fast loans with sms more expensive. This applies regardless of the interest rate being capitalized twice during the term or if it is only an invoice to be paid at the end of the term.

We can take a clear example. This is fictitious, but it is based on an average of the lenders who have changed the maturity from 30 to 61 days.

Lender A previously offered a sms loan of USD 4000 with USD 600 in interest. Nowadays, the cost is USD 950 for the loan of 61 days. The extra month does not in itself make the loan more expensive, but since the borrowers no longer have the option of choosing a shorter maturity, they are forced to pay extra for the loan.

A phase-in period – changes are to be expected

A phase-in period - changes are to be expected

The new network rules and rumors of new legislation meant that many lenders a few months ago felt compelled to make rapid changes. We suspect that we are currently in a phase-in period where the new conditions have not really been manifested in the new prices for sms loans in an entirely adequate manner. Based on this, we assume that the prices of sms loans to be repaid within 61 days will both fall and be harmonized overall. As the lenders’ risk increases with longer repayment periods (and even the borrower’s risk!), There is a real risk that the cost to the borrower will still be higher than it would be for a 30-day loan, but when everything has “settled down” we guess that the difference will not be very large.

Are there no 30-day loans?

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It is far from all the lenders that have made this change in terms of the shortest possible term. Therefore, there is still a large amount of sms loans in 30 days to apply. However, these are most likely to be phased out slowly over the coming months and years. However, the final nail in the coffin for the most typical sms loan will probably not come until the legislature decides on mandatory rules for the lenders, provided that it is done at all.