The Credit Information Bureau has just summarized the trends in the loan industry for the period from October 2017 to September 2018. When reading this list, it is impossible not to notice one extremely clear trend: mass familiarization with the payday loans of 20-year- olds.
Why is this happening? I will try to explain this phenomenon of debt in payday loans from people who can barely drink beer legally.
Why do young people choose payday loans instead of bank loans?
There are several reasons. In addition, they mix with each other, creating a good environment for young people to enter the world of non-bank loans. The first reason is prosaic
1. It is easier to get instant cash than a loan
It is true. To get a loan from a bank, you must have a credit history or, in the absence of a loan, stable employment and regular remuneration transfers to your account (by the way for young people having trouble getting their first loan – a way to quickly build creditworthiness). Additionally – many young people can count on the junk contract at the first job. Which banks will not accept. And parabanks – by all means.
After all, it is not easy in a bank. Banks, as a rule, are afraid of young people, because they have their statistics, and they leave no illusions. Repayment and liability among the youngest customers is poor.
That is why a young person needs to get a little bit hard before he gets the first loan from the bank. And in the parabank? All you need is a proof, a smartphone and money lands on your account in 15 minutes. Which in addition – in the case of many companies – are borrowed for free (you have heard about payday loans for USD 0).
This one-time promotion is aimed at attracting new customers, but in many cases it ends with something that can be called straight
2. Addiction to payday loans, or why young people are indebted
When the first payday is due, it turns out that the wallet is empty. After all, the borrowed USD 1500 spread quickly (young people have a light hand for money) and the term is chasing. What is being done then? He uses the simplest solution – he takes another free loan and pays the previous one.
Such a scheme is possible for a long period. Until there are no free loans on the market. There are several scenarios for the borrower’s future, one of them – which I will explain below – is falling into a loop of payday loans and a desperate cry: how to get out of non-bank debts?
Why is youth indebted?
Hot young blood means hot needs and an even greater desire to meet them immediately. A new gadget, weekend outings, buying a car (a 20-year-old on a tram will not impress any girl in his opinion) – all this requires money. Of course, you can – just like in the days of your parents – go to work and postpone. But why? If you can have it all right away. Just take out your phone and apply for a loan. Somehow it pays off …
Parabanks use the lack of knowledge of young people
The average of the largest activity in taking the first non-bank loan is 21 years. If the subject of Personal Finance existed in high school, then even the biggest stuff would have the chance to code that a person without basic knowledge about the functioning of parabanks will be quickly shaven by, He would know what the APRC means and that taking a loan under which you get 10,000 and repays 23,000 is throwing away 13,000 dollars. And this donation is enshrined in the contract, after which you cannot say: the parabank has deceived me.
He did not cheat. He just shaved another loser.
APRC or Real Annual Interest Rate – in simple terms, the loan parameter acts as the officially determined measure of the cost of the loan. It allows direct and immediate comparison of offers from various banks, credit unions and non-bank loan institutions.
How many of the 27,000 young people who will be shaved in the last year – this BIK will not tell us. But judging by how many come for help for those in debt – this will not be a low percentage.