Quick loans, fast loans, consumer loans-dear child have many names. These types of loans have become extremely popular among Danes, but they are often associated with high costs.
And that’s not always entirely reasonable. At least not if you ask the payday loan providers. The law is screwed in such a way that the mortgage banks feel compelled to disclose some of the costs of the loans, which appear much higher than they actually are.
Director: ÅOP misinforms customers
The law covers borrowing costs called ÅOP, ie annual costs as a percentage. But many loans are often offered as smaller amounts of a few thousand dollar, and they also often have a short term, for example a month or two. Therefore, it is also not relevant to talk about annual costs when it comes to this type of loan. This is according to Mikky Linstown, director at Serratum in the Nordic countries. Serratum is one of the many quick loan banks available on the market.
- The APR is not useful for short loans. It becomes fictitiously high and does not show the real costs. There are no consumers who will pay deher several hundred or thousand percent in the OPP, he explains.
Several hundred percent difference
As an example in the article from Finance, it costs 625 dollar to borrow 3,000 dollar from Serratum for one month. The actual APR is at 250 percent according to Serratum, but because of the law, the bank should instead inform the customers about an APR of 900 percent. That’s because the 30-day loan is repeated for 12 months at interest rates, the director points out.
- The OPP should help consumers see the actual annual cost of the loan as a percentage, but that is not the case. We are forced to report a wrong OPP on our products and thus mislead customers, he says.
Consumer Council Think: OPP is reliable enough
The CEO’s frustrations over the ÅOP formula are supported by Benjamin Johnson, who is an associate professor at the Department of Finance at Copenhagen Business School.
– It is obviously absurd to calculate an APR on the basis of a loan arrangement lasting only one month. Although this is a legal requirement, the OPP is an annualized size and not at all conceived for such short maturities.
The lecturer, however, will not judge whether quick loans are a good idea or not.
The Consumer Council Think does not believe that there is anything in the way of applying ÅOP to short-term quick loans. Too many consumers choose to extend their loans anyway.
According to a report from the Competition and Consumer Agency, 61,000 Danes borrowed a total of $ 436 million from the mortgage banks in 2014. The popularity of the mortgage loans is therefore not to be mistaken. There is clearly a need among consumers to be able to borrow money easily and quickly.