On the Internet, you may come across short-term non-bank loans that are also available to low-income people and records in debtors’ registers. These are so-called MSS loans , which, however, can have a number of risks. Before you nod to one such tempting offer and succumb to the idea of easy money, read the dangers lurking about you with these loans.
Risk 1 – Extension of maturity for a high fee
MSS loans are characterized by a short maturity. You can borrow several thousand crowns for 30 days. It may happen that even after a month you will not have a loan to repay. At this point, you can request an extension of the maturity by another month, often five to twelve times. The company will charge every maturity extension and you can pay up to several thousand crowns depending on the loan amount. However, extending the maturity and paying the fee does not reduce the amount you borrow.
Risk 2 – Disproportionate fees for each thousand-dollar borrowed
The company charges a high fee in the order of hundreds of crowns for every thousand-crowns borrowed. For companies, these loans are very risky because they lend to low-income groups, which often do not return the amount borrowed and for that it means a loss to the lender. At the same time, it costs them enough to cede the debts to the enforcer. High fees will make the entire loan more expensive and some people may overestimate their solvency.
Risk 3 – Unclear terms of contract
You may receive a contract from the Provider that you do not understand and that the charges, penalties and repayment terms are not obvious. Do not sign such a contract and ask your non-banking company to explain and complete the necessary information. Take the time to read the contract and, if necessary, hand it over to a financial advisor who will review its formal side.
Risk 4 – Usury practices
The new Consumer Act laid down new conditions for the registration of non-banking companies and a number of “usurious” companies have ceased their activities. But even now, you may come across unfair practices by some providers that do not check your current financial situation and assess your ability to pay. At the first stroke you will be charged high penalties and thus make it difficult to repay the loan. In the end, you can get into the hands of the bailiff.
Risk 5 – Arbitration clause
Note that there is no arbitration clause in the loan agreement. As a consumer, this deprives you of the right to have a dispute settled by an independent court. The fraudulent provider may intentionally raise a dispute and agree with the arbitrator to rule in his favor and not accept the client’s objections. The client of the company has no appeal against the judgment by the arbitration court.
Risk # 6 – No documents required
While payday loans may seem advantageous and quick without any proof, under the new Consumer Law companies have to assess your creditworthiness and assess your income and expenses. It shall do so on the basis of a bank statement or a receipt from the employer. Correctly, the creditor company should also check your credit history in the debtors’ registers (but this is not yet strictly required, and so loans can normally be obtained without checking the registers). In any case, if you come across a company that is circumventing the applicant’s assessment, you will only put yourself at risk, as you may not be critical enough to assess your ability to meet your obligations, and you may be in excessive debt.