Payday Loans Online vs Banks: Things to Consider before Applying

Today, almost everyone has probably used payday loans at banks or MFIs offering payday loans online at least once in their life. Financial difficulties periodically arise for any person. Therefore, it is necessary to resort to the help of financial organizations either state or private. In 2020, the popularity of banks was shared by MFOs (that is microfinance organizations). They attract customers by offering the first payday loans online without interest which significantly increases the flow of customers.

Payday Loans Online

At the same time, you do not need to have a good credit history, look for guarantors, collect a whole heap of documents to get payday loans online, or use services like MoneyZap, to find a lender for you. With banks, the situation is different. To get payday loans, you need to adhere to some rules and collect a bunch of papers just to get a credit which cannot be said about payday loans online.

Difference Between Banks and MFIs

The main difference is that loans are issued by banks, and microloans are issued by legal entities with an appropriate license. A bank that offers payday loans is a large financial institution that “works” with money in general. The bank is interested in a person’s income, one’s credit history, and guarantors. MFOs are usurers in the “old” sense of the word. The consumer is given a small amount at a large percentage which must be returned. For a microfinance organization, only the current solvency is important so that a person can pay payday loans online without a balance.

The bank solves problems with debtors through the legal system (bailiffs) so as not to spoil its reputation and not go beyond the law. The MCC solves problems with debtors in any way possible, incl. through the collectors. In this case, profit is more important than reputation. The bank has strict requirements for borrowers while microfinance organizations are not afraid to take risks and give money to those who may not be able to pay it back given payday loans online. At the same time, banks have the right to lend any amount while microfinance organizations are legally limited.

The experts figured out what are the main differences between the bank and MFOs. They have answered the question in which cases it is better to go to the bank and in which to apply for a loan service.

Reasons for Failures and Their Probability

Many citizens wonder why they were not given the long-awaited loan although they provided all the documents and have no problems with the law. In order to get a payday loan from the bank, the client must have an impeccable reputation and instill confidence in employees. Banks reserve the right to refuse a loan for a good reason in their opinion.

For example, bankers can show distrust to people, representatives of certain professions, and fields of activity. The MFI does not care about how you will receive money and even offers the first payday loan online without interest. It is enough to realize that you will be able to repay the money by paying payday loans online.

Regular Calls from Banks

An MFI guarantees the safety of your personal data in the same way as a bank. However, calls with new offers from the first group of organizations are more common. Banks call their customers and constantly offer them something. This applies to both fairly new establishments and the leaders of the lending market offering payday loans.

This also happens because the user’s personal data in the banking system is freely distributed: the phone number and address can be known to interested parties. The MFO is not aimed at this type of work. Thus, in order to refuse this type of service, the client does not need to go personally to the office and discuss this issue to fully use payday loans online.

Money Transfer Fees

Online services and lucrative offers from microfinance organizations made it so that users quickly got used to a simple, convenient, and cheap way of transferring funds. Most of us are already accustomed to not paying for services with money transfers, payment for purchases, and commissions. Still, banking services involve some payment for sending money or withdrawing it from an ATM. This is very convenient, especially when it comes to paying payday loans online.

Advantages and Disadvantages of Online Payday Loans

An online loan is issued quickly and money is given out to everyone who is 18 years old. Moreover, funds can be returned without paying extra interest. According to the legislation, the borrower within 14 days has the right to return the microloan by paying interest only for the term of using the money. The disadvantages of microfinance institutions include the high cost of borrowed money. 1% per day is 365% per annum. Banks give loans before payday at 10-30% per annum. Another disadvantage is large fines. The maximum fine + late payment interest cannot exceed 2 times the amount of the online payday loan.

Microloans can be transferred: on a bank card, in cash, secured by transport (mini-loans secured by real estate is prohibited at the level of legislation), to an electronic wallet, as well as for business. Loans to a card are the most common option as money comes quickly, the amounts are small, and requirements for borrowers (in addition to age) are extremely rare. The main disadvantage is considered to be a large percentage of up to 1% per day. A secured mini-loan is the most advantageous offer since the interest can be up to 0.05% per day.

The rules that limit microfinance organizations:

– loans can be issued only in US dollars;

– if the loan is issued for a period of less than a year, the maximum percentage that an MFO can establish is 1% per day;

– only guarantors and vehicles can be used as collateral as a collateral payday loan secured by real estate is prohibited;

– the maximum amount of the fine and late payment interest cannot exceed two times the amount of the loan;

– MCC must have a license for its activities. 

Is it possible to cheat MFIs?

Be aware that you cannot cheat a microcredit company. When you take money from it, you sign an agreement according to which this money must be returned. This also applies to online loans to payday when a clause is spelled out in the legislation according to which, when concluding an agreement, you can use an electronic signature (a code from a verification SMS) which is equivalent to a regular signature.

In order not to fall for the tricks of “scammers”, carefully read the contract. It should state the amount of the loan, how much interest will be charged, and the date of return. On the title page, the total percentage is always indicated in a separate block. In the contract itself, there must be a table indicating the amount, interest rate and services provided. If the MFI you contact does not have a license or the organization is breaking the law, then be sure to write a statement to the police. Don’t be afraid to call the Central Bank and consult about the situation. It is compulsory to involve law enforcement agencies in the case.

Written By:  Frank Glemstone – Frank is a graduate of the Master’s program in Economics Sciences. He has written numerous articles about personal finances and wealth. Working as the main author for MoneyZap he is now connecting with clients across the country, helping them achieve their financial and life goals.