In 2015, an investigation was launched aimed at reducing debt in Sweden and this study will also look at how the rules for sms loans can be tightened.
Do not make the quick payments
Good Finance obviously thinks that it is good as long as the requirements do not make the quick payments disappear because we think it is a good service and that any interest rate ceiling is adjusted to the size of the small loans and short repayment periods.
An sms loan could never have the same interest rate as a private loan because the loans are so small and have such a short repayment period.
Same interest rate as a private loan
On January 23, 2020, the government submitted a bill to the Good Finance that will in all likelihood be voted on in Good Finance. You can read more about this in our article on how the fast-loan industry will be tightened in 2020 and if you are curious about what the rules look like today, you can read about it in our article on today’s rules for sms loans.
In this article (which was originally written in the fall of 2015 but which was updated 24 Jan 2020) you can instead see what the investigation looked at from the beginning and what we thought about this.
Interest ceiling of 40% plus reference rate. There is no interest rate ceiling in Sweden today. If a bank wants to set an annual interest rate of 10,000%, it may do so, but then, of course, no one would borrow.
SMS loans today have an effective interest rate
Most SMS loans today have an effective interest rate of 200% and upwards. 200% may sound like a lot, but it is actually a reasonable interest rate for loans of a few thousand dollars to be repaid within a month.
For example, if a loan of USD 1,000 to be repaid after 30 days has an effective interest rate of 219%, this means that you will repay USD 100 in interest, ie 10% of the size of the loan.
If the same loan had an effective interest rate of 5% that many private loans have, the lender would only earn just over USD 4 and it takes anyone who it would not work.
However, it makes sense to set a reasonable loan ceiling because there is no reason why some lenders take over 1000% ineffective interest rates when others take maybe 200 – 300%.
The proposal for an effective interest rate of 40% (plus reference interest rate) is certainly not particularly low, but it will make the really small short-term loans go away.
Cost of a loan must never exceed the amount you have borrowed
The idea is that the cost of a loan must never exceed the amount you have borrowed, which means that if you borrow USD 2000, the cost must not exceed USD 2000.
No sms loans today have such high costs so they will not be affected but it will limit how many times you can extend the loan and we think that makes sense.
Tougher hold on small loan companies that fail in their credit assessment or who do not want to do a credit check at all. Thumbs up for that! It is not intended that people who in all likelihood will not be able to repay their loan should be able to borrow.
The rules for the marketing of sms loans are expected to be further tightened, but Good Finance does not know what this actually means, not yet.
Possible requirements for written agreements. If this means that signing with e-leg is not enough and the borrower has to sign a paper agreement, the time of the fast loan will be over. And we don’t like that!
In our article laws and regulations for sms loans, you can see how sms loans are regulated already today.