Is there really something you can call a cheap SMS loan? If you believe the media in this country, an SMS loan is by definition reprehensible. They always seem to be better off with the more classic private loans. However, the question is not so simple at all, but there is a lot that affects it all and I will take a closer look at this.
High effective interest rate
If you look at regular prices for SMS loans, there is no talk about the whole thing that they have a high effective interest rate. The only problem is that it is not a good way to compare SMS loans and, for example, private loans. This is because the effective interest rate is calculated on an annual basis and the short-term micro loans do not extend that far. Therefore, in practice, the effective interest rate becomes so high that you count it all as if you would take out an SMS loan on January 1 and then repay it at the end of that month. But to get money for this, you take out a new exact same loan that is used to repay. Then at the end of next month you take another loan to repay the first loan and then you also need to borrow more to be able to repay the interest. So you continue all year and then it has become a very expensive loan.
But since it is not at all how you borrow money in the form of micro loans this is not an interesting comparison. However, effective interest rates can be used to compare two different micro-loans with the same maturity. And effective interest rates are great if you want to find the cheapest private loan.
But isn’t it expensive then?
As I said, the effective interest rate is not something interesting to use when considering the cost of the loan. But this is not at all the same as it is a cheap way to borrow money. Most of us probably think that the total price of an SMS loan is high and that it is not worth the money. But this is a question that you should ask yourself and not let anyone else answer. Do you think it is too expensive, for example, to pay about USD 300 to borrow USD 2,000 for 30 days? If you answer yes to that question then you should not borrow money in this way.
Offer for new customers
One interesting thing that you can use is the offers the lenders have to their new customers. It is not uncommon to borrow money from a lender for the first time. Their idea with this is that you should like their service and then use it again in the future. However, there is no requirement for this so you do not have to borrow from them in any way again. If you decide to borrow several times, you should always compare which lender is the cheapest.
SMS loans vs private loans
If you are looking for a slightly larger SMS loan, there are often other options in the form of lenders that lend out small private loans. What you choose from these two options is most about your own will. It is often the case that private loans that extend for at least 1 year are more expensive overall, even if the interest rate is lower. This is when the interest is paid over a much longer time. But the monthly cost will be lower since the amortization rate is not at all as fast. On the contrary, for SMS loans it will be high monthly costs but usually a little cheaper overall.
Compare SMS loans
The most important thing before you borrow any money is that you compare the costs. It is only in this way that you can determine whether or not an SMS loan is cheap enough. On this site you can find comparisons of micro loans that can give you a good idea of the price level.