Have you heard of SMS loans? Well the procedure to get them is the same as others. The only difference is that it is done through text messages.
SMS loans are short-term loans borrowers get through text messages. The borrowers send a loan application to the bank via SMS. The response to the loan is also through messages.
SMS loans are short-term mobile loans, also known as mobillån – forbrukslån in Norwegian, that you can repay within a short period. These loans are popular in many developing countries. There are companies that give out these types of loans and to make their work easy, they use text messages. How does SMS work for them? In what ways does using messages make loan application and approval easy? This article will answer these questions.
Today, these micro-loans are popular in many developing countries. Using SMS has made getting loans very easy. In what ways do these messages do this? What are the benefits and downsides of these loans? We will give attention to each question.
How Does SMS Make Loans Easy?
Loan documentation takes a lot of time. Effective communication can make it easy for both parties. This is where SMS comes in. How easy are SMS loans? Here are some ways it is:
Text Messages are Always Read
SMS always gets read. According to a survey, 99% of messages are quickly read in 3 minutes. People respond to text twice as fast as they answer phone calls. Also, texting is ten times easier than making phone calls. For those stated reasons, getting a loan through SMS is easier and faster.
It Supports Automation
SMS automation is the automatic sending of messages to people without manual intervention. This saves a lot of time. It becomes easy for you to get a loan quickly as the company responds on time.
SMS Provides Personal Touch
SMS loans come with a personal touch. There is an automatic response keyword feature that makes the loan documentation faster. For example, keywords like HELP, TALK and APPLY provide a personal touch to your messaging response. You are sure of getting a reply if you use any of those keywords.
Benefits of SMS Loans
Here are some of the benefits:
Quick Response
One of the benefits of SMS loans is that the application process is fast. It is also easy to access the money shortly after applying for it. If you meet the requirements, the money can be sent to your account that same day.
Great for Emergencies
It is not always easy to get a loan for your emergencies. Many financial institutions are strict in giving out loans. Also, loan documentation takes a long time. SMS loans are quick and simple to apply for. With these loans, you can quickly attend to emergencies at any time.
Simple
Applying for this loan is not difficult. It requires simple qualifications to apply. Some of these qualifications include your name, a valid ID card, how much you earn, your financial status, home address and other important details.
Also, a credit score is not included in the requirements. So even if you have a low credit rating, you can still get loan approval.
Short-term Repayment
SMS loans are short-term. This means that you can repay them within a short time. This time can be within 6 to 24 months.
No Collateral
These loans are often referred to as unsecured credit. This is because they do not need collateral before you can apply. You do not need to use your property or vehicle to secure them. This is a good reason why it is easier to get this loan than others.
Downsides of SMS Loans
Like every other thing, this type of credit has its disadvantages. Here are a few of them:
High-Interest Rate
The interest rate in these types of credit is always higher than others. This can affect a person’s financial life as it leads to debt. Since it is short-term, one will have to pay back within a short period. There might not be enough time to repay the money.
Lack of Flexibility
When applying for this loan, a person will give out limited information to the lender. The response one gets for this text message loan is automated as they are configured in a way that you cannot place a complaint to the financial institution.
Financial Quicksand
Due to the short duration one has to repay the loans, it can be difficult to pay off the debts on time. When the loan is due, you may end up borrowing money to balance off the debts. This will sink you further into the debt quicksand.
Personal Information Changes
When applying for the credit through messages, the microloan institution will ask for some basic information. This can include your phone number and bank details. In cases where your phone number changes, the lender will not recognize your number anymore.
Other times, a bank detail change can be disastrous. The loan amount might enter into the wrong place. It is therefore important to validate new information. Not all lenders offer such validation services. This is why it is important to choose an authorized micro-loan company.
It is too Easy
Unlike other bank credit, text messages make loans very easy to get. This ease can also be a financial pitfall. Because you can get the loan within hours after applying for it, you cannot change your mind.
Spam
Some micro-loan companies might use a person’s number for spam. They may continuously send messages to your number. This can be very annoying and hard to stop. If you will like to know how to stop receiving spam messages from these companies, check here: https://www.consumer.ftc.gov/articles/how-recognize-and-report-spam-text-messages
Extra Charges
Micro-loan companies can add extra charges on late payments. They may increase their interest rate and late fees. These can affect a borrower’s credit score. It can lead to debt. Thinking about how to pay off this debt could cause unwanted stress. If care is not taken, it will interfere with a person’s day-to-day activities.
Ruins Your Credit Score
SMS loans are very tempting because it is easy to get them. Failure to repay the loan can affect your credit score. One way to have a good credit score is to pay off debts quickly but this may not be possible with this type of loan. The loan has a short duration of 6 to 12 months to balance it off. When it is due and you fail to pay, your credit score reduces.
Many lenders do not always approve long-term loans for people with poor credit scores. The only type of loan that allows such a credit score are SMS loans which made it that way in the first place.
Prepayment Penalties
Some micro-loan companies impose penalties when a loan is paid early. Sometimes, these penalties are high. When borrowers quickly pay off loan debt, the lender will not make any profit. To avoid this, some lenders may add a penalty. Prepayment penalties can affect the borrower’s credit. To understand what this prepayment penalty is, watch this video.
Conclusion
SMS loans are quick and convenient but come with risks. Borrowers should only apply for these loans from reputable micro-loan companies. In this way, many of the risks involved are averted.
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