Loan companies and parabanks
Many people wrongly associate lending companies with parabanks, although in reality the two institutions differ fundamentally in the source of cash for loans, as well as in the regulations governing their activities. Loan companies obtain capital from their own sources for further financing for consumer loans, while parabanks grant loans from money received from customers. In practice, this carries the risk of losing funds deposited in them.
It is also worth noting that parabanks are subject to almost no supervision, so their activities cannot be controlled. Loan companies, in turn, are obliged to report their activities and obtain an entry in the register of the Financial Supervision Authority, which only contains legally functioning enterprises of this type.
Legal regulations to which loan companies are subject
Companies providing quick loans must comply with the Consumer Credit Act, including the so-called anti-usury act. The new rules of the latter entered into force on March 11, 2016. According to them, all non-interest loan costs cannot exceed 25% of the amount borrowed and 30% of this amount per year. The introduction of these regulations is aimed at securing the interests of both clients and loan companies.
Institutions granting loans may not exceed these cost limits, as they are statutory. These companies must conduct their activities in accordance with applicable regulations, and thus do not burden clients with high costs of obligations incurred for relatively small amounts.
The great advantage of using the services of loan companies is the fact that in this case the formalities are kept to a minimum. Most of them grant online loans via the Internet, and the loan decision is issued in a relatively short time. Although it is easier to receive additional cash in this type of institution than in banks, one should take into account the possibility of refusing a decision.
More and more loan companies are working in cooperation with the Credit Information Bureau and are verifying the credibility of their clients and their credit history. This is not surprising considering the fact that the money for loans comes from own sources of this type of companies, therefore in the event of unreliability of clients, the risk is primarily borne by their owners.
Who uses the services of loan companies?
Although the formalities when granting online loans are as limited as possible, the companies that grant them verify the ability of their clients to repay their liabilities. In practice, this means that it will be difficult for people without a steady income to receive such funding. Commissioned by one of these types of enterprises, has prepared an analysis of data on the situation of customers using online loans.
According to the report, they have a stable source of income, and their monthly earnings range from USD 2,000 to 5,000. This means that the clients of loan companies are people with a stable financial situation who take advantage of the opportunity to earn extra money basically in surprising situations, such as the need to repair a damaged car or replace electronics and household appliances with a new one.