Payday loans

Payday loans, text message loans, telephone loans, online loans or short-term loans are different names for what is essentially the same product. What these loans have in common is that they are for relatively small amounts, that they are granted and paid out quickly, and that they are to be paid back within 30 days. Taking a payday loan is a short-term solution that can become very expensive.

Typically, payday loans are for rather small amounts, between SEK 3,000 and SEK 10,000, and they often are to be paid back after 30 days.

You pay both a fee when you take a loan and interest on the loan. The total cost, the effective interest rate, can become extremely high, because the payback period is so short. It can end up being several hundred or thousand per cent.

Before you take a payday loan, it is good to compare the effective interest rate at different companies, because both the fees and the interest rates can vary a lot. It can also be wise to see whether there are other ways to borrow money to resolve an emergency.

If you cannot pay

Companies have different routines if you cannot repay your loan, but most commonly you first receive a reminder about the unpaid invoice. There is a charge for this reminder. Then the matter is sent to debt collection, and there is an additional charge for this, SEK 180. The next step involves the matter being sent to the Swedish Enforcement Authority for collection, and there are additional charges for this. Throughout this entire process, interest is accumulating on the original amount (cost of capital). The debt quickly racks up.

The number of cases the Swedish Enforcement Agency receives concerning unpaid payday loans has risen sharply in recent years.

Authorisation

As of 1 July 2014, all companies that lend money to consumers must have authorisation from the Swedish Financial Supervisory Authority. They must also demonstrate that their operations are sound, and there are requirements regarding information and documentation.

Marketing

According to the Consumer Credit Act, anyone marketing loans is obliged to provide information about the cost of the loan, for example:

'Borrow SEK 5,000 for 30 days. Fee SEK 200, interest charge SEK 500, credit rate (fixed) 120%, effective interest rate 392.43%. The total amount to be repaid is SEK 5,700.'

Keep in mind

Do not borrow money unless you can repay it. If you do not have SEK 2,000 now, will you be able to pay SEK 2,600 in 30 days?If the debt ends up at the Swedish Enforcement Agency and you are issued a record of non-payment, it remains on register for three years. It can make it difficult, for example, to get a mobile phone contract, rent a flat or take a new loan.Consider other types of loans with a lower interest rate – for example, account credit, credit card or a membership loan.

Informationsansvarig
Konsumenternas Bank- och finansbyrå