A Comprehensive Guide to Short Message Service (SMS) Loans

How familiar are you with SMS loans? The application procedure for these credits is virtually the same as the application for unsecured loans; only the former can be obtained through a text message.

These microloans have short repayment terms and sky-high interest rates. Every applicant has to meet the eligibility requirements of financial institutions to get his/her application approved. Financial institutions impose minimum age and income requirements, as well as check the credit score of candidates.

SMS loans can easily lead to debt accumulation if the installments aren’t paid every month. Such scenarios usually happen when borrowers take out more than one microloan.

The guide below will introduce you to all aspects related to SMS loans.

What is an SMS loan?

SMS loans are short-term, unsecured loans available to borrowers after sending a text message to the bank offering them. Once you send an application, the answer from the lender is supposed to arrive in a few hours. Nevertheless, the procedure for obtaining such credit doesn’t just involve sending an SMS. Applicants are still required to sign an agreement, which is usually sent over email.

Moreover, in Norway, the amount of these credits is no higher than several thousand kroner. Most banks also provide a form on their websites for applicants to fill in instead of sending a text message. The interest on SMS loans is relatively high, and they must be repaid in a short timeframe.

The largest number of Norwegian banks offer microloans up to 30,000 kroner, not higher. The most extensive repayment period is twelve months. The inability of applicants to pay off the installments during the arranged period might lead to debt problems. See this page for some useful tips on dealing with debt.

Interest rates and fees

As far as interest rates are concerned, SMS loans have shockingly high rates due to the short-term nature of the credits. For instance, by borrowing 10,000 kroner to pay back in a twelve-month period, the interest and other expenses would approximately cost NOK 4,000.

The lower the sum you borrow, the higher the interest percentage. The same goes for the period of repayment. The shorter the timeframe, the more money you’ll pay for interest. Many applicants are confused by the sky-high rates when compared to the short length of the credit. Nevertheless, banks calculate the rates on an annual basis regardless of the repayment period. Even if you agree to pay the money off in two months, the interest will account for the entire year.

Borrowers should beware of potential debt problems interested in taking out an SMS loan. By taking out a single one, there is a low risk of defaulting on it. Some individuals, however, make the mistake of taking out several credits at the same time, which significantly increases their borrowing costs every month. Unless you wish to end up deep in the red, applying for a single microloan would be a wise decision.

Another thing to consider besides the interest rates is the establishment fee on SMS loans. If interested in applying for an SMS loan, these forbrukslån.no – SMS loan tips will assist you in making the best choice. The establishment fee is charged by banks once an applicant takes out a credit to cover the cost for providing him/her with credit assistance. In case the establishment fee is much higher than the borrowed sum, it tends to increase the interest rate.

The usual establishment fee charged by banks in Norway is approximately NOK 900. Some banks oblige borrowers to pay the same fee regardless of the loaned sum. In contrast, other banks lower the establishment fee if the loaned sum is small.

Application requirements

When applying for an SMS loan, every applicant is expected to consider the minimum requirements for getting his/her application approved. Age is an important factor considered by banks, as a person has to be old enough to be considered eligible. The age requirement of certain banks is for applicants to be at least eighteen years old, whereas most financial institutions require them to be twenty years old. The strictest lenders require borrowers to be twenty-five years old.

In addition, most banks don’t allow borrowers to submit an application if they’re over seventy or seventy-five years old. Lenders also take a close look at the income of borrowers, which isn’t universal. For instance, the minimum income requirement required by banks is between 100,000 and 150,000 kroner on an annual basis. Strict lenders impose a requirement for the minimum annual income of applicants to be NOK 250,000.

Fortunately, when it comes to SMS loans, almost all borrowers meet the minimum income requirements by lenders. Additionally, moneylenders consider the amount one is borrowing as a deciding factor. They compare the requested amount with the income of the applicant to assess the level of risk.

Besides the requirements imposed by banks, the government also obliges applicants to adhere to certain guidelines. Regarding unsecured credits, the Norwegian Ministry of Finance impedes banks from approving loans to applicants whose incomes aren’t sufficient to cover the necessities, such as food, insurance, rent, etc. See this URL https://www.investopedia.com/ask/answers/110614/whats-difference-between-secured-line-credit-and-unsecured-line-credit.asp#:~:text=Key%20Takeaways,as%20it%20riskier%20for%20lenders., to learn about the difference between secured and unsecured lines of credit.

Borrowers are also supposed to have an income that is large enough to withstand an increase of the interest rate of a minimum of five percent. Banks are prohibited from giving credits to borrowers that exceed their annual income by five times. As per these guidelines, loans have to be paid in fixed monthly installments in a period of a maximum of five years. Exceptions to these guidelines are only granted when the loan is used for the purpose of refinancing.

Credit score

The FICO score of applicants speaks volumes about their creditworthiness, thus explaining why banks take it into account when checking whether one’s application meets the criteria or not. This score is based on the age, credit history, and debts of individuals.

The credit score, however, isn’t considered a crucial factor when getting approval for a microloan. It should be higher than twenty points for an applicant to be seen as eligible. Although it won’t have a tremendous effect on your application, this score will undoubtedly influence the interest rates. Having a good score will help you receive low interest rates. The lower it is, the more money you’ll be required to pay for interest.

Early repayment

Borrowers who intend to settle their SMS loans faster can choose to pay larger installments. For example, by paying a double installment, the interest rates in the future will be reduced. Nevertheless, if you decide to use this opportunity, you’d have to contact the bank in advance for instructions on how to proceed.

Moreover, you’ll have to choose whether to stick to the existing repayment period or have it reduced because of the increased installments. It’s considered wiser for applicants to reduce the repayment term instead of keeping the original one.

Final word

SMS loans are the right choice for borrowers who have no time to waste visiting banks and discussing the terms with bank managers.

You are a text message away from getting the finances you need. Take your chance!

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