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how to defend ourselves if we are prey to one of them

Financial difficulties often lead to wrong decisions. Much more, when there is at hand a multitude of alternatives that are presented as solutions and that are nothing more than traps, than they will only aggravate the problems. That is how fast mini-credits work.

Eight things to keep in mind before gambling with a loan

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Many of them advertise with attractive claims, like “take the money now and pay it back in 30 days without paying interest“Offers like that – in general, mini-credits for amounts that do not exceed 600 euros – may seem the ideal solution when faced with the urgency of paying a payment when there is not enough money at that time.

There are also loans of larger amounts (in general, up to 5,000 euros) and to repay in longer terms, of up to four years. And another version of this class of credits is given by the so-called revolving or deferred payment cards. What is the trap behind these proposals?

Reasons for mistrust

“The better the offer seems, there are more reasons to distrust“, points out Gabriel Rodríguez, one of the founders and managers of the financial products comparator SinComisió

Of course, there is no financial institution or private lender that moves for charity or charity. What they are looking for is to obtain a profit in exchange for the credits they offer. That is legal and even logical. The problem lies in the conditions they impose.

Even in cases where the possibility of repaying the money without interest in the short term (up to 60 days) is certain, the lenders know that they have the financial difficulties of those who resort to them in their favor. Trouble that often causes late payments. It is then when not only interests appear, but also they are exorbitant and the debt becomes almost infinite.

“The 0% advertised on television or on the internet can be converted into 4,000% APR,” says Rodríguez. The APR is the equivalent annual rate, which governs this class of financial products and which, according to data from the Bank of Spain, should not deviate too far from 6.5% in the case of consumer loans and 18% in credit card operations.

As a consequence, “the costs become unaffordable and users end up asking for more mini-credits to pay the abusive interest generated, entering a spiral of suffocating debt,” explains Rodríguez. “We, at Without Commissions, have seen people with even one hundred chained mini-credits“.

Excessive interests and endless debts

In other cases, the credit includes very high interests already from the initial offer. As highlighted by the Organization of Consumers and Users (OCU), companies such as Creditea advertise their credits on the internet with a minimum APR of 24.9% and a maximum APR of 381.28%.

Other companies also announce their loans with maximum APR figures well above that indicated by the Bank of Spain: EuroLoan (200.7%), Monedo Now (197.15%), Bondora (95.29%), Fidinda (79.6%) and MoneyMas (49.9%).

To get an idea: a loan of 5,000 euros to be paid in four years with interest APR of 6.5% represents monthly payments of 118.57 euros and a total accumulated interest of 691.59 euros.

With an APR of 25%, the monthly payments rise to 165.79 euros and the total interest reaches 2,957.71 euros. The maximum APR announced by Creditea (381.28%, for the highest risk profiles) implies some sidereal interests, which could approach up to 60.000 euros.

How to realize that a credit is abusive

An interest APR higher than 20% means that “you have before you an abusive mini-loan, which we could officially consider usurer“, Gabriel Rodríguez points out. Both from and from the OCU and other user associations recommend avoiding” temptation “and not accepting any offer of this nature.

All credit contracts -by law- must include the established APR interest. For this reason, Rodríguez emphasizes that it is “essential” to always thoroughly review these documents. And also to make sure that “there is no abusive commissions in the event of non-payment or other circumstances “.

“It is advisable to search well even between the fine print -specifies this expert- because the interest APR usually appears very hidden. For me, who has been reviewing contracts for a long time, sometimes I find it difficult to find where the interest applied is reflected “.

As a general rule, Rodríguez considers that “we should flee from all those credits offered by private entities or private lenders“and that” it is a mistake to access any type of quick mini-loan of the thousands that appear on the net and through the media. ”

If I have fallen into the trap, what can I do?

What about those who – out of ignorance or desperation – have accepted any of these usurious credits? Is it because they signed a contract obliged to accept all its conditions, however abusive they are?

The answer is no. The Usury Repression Law (in force since 1908) dictates the Nullity of usurious loan contracts, either because it stipulates “an interest notably higher than the normal amount of money and manifestly disproportionate to the circumstances of the case”, or because it was signed “under such conditions that it turns out to be leonine.”

Due to the lack of greater precision in the text of the law, its application has been limited over the years. But a Supreme Court ruling in November 2015 set a precedent by agreeing with a man who had signed a contract of type revolving with an interest APR of 24.6%.

“This Chamber,” says the text of the judgment, “considers that a difference of this magnitude between the APR set in the operation and the average interest of consumer loans on the date it was arranged allows considering the stipulated interest as notably higher than normal money“.

Subsequent rulings confirmed the abusive nature of credits with such a high initial APR. What is determined in these cases is that the person who has applied for the loan pays only the net of the capital that he received in the first instance. Namely, interest becomes 0%. And if you have already paid more than that amount, you can claim the return of the excess.

For this reason, both the OCU and other organizations encourage “captive debtors” – those who cannot escape the wheel of endless interests – to go to court looking for the amounts they are paying to be declared excessive.

And they also ask that a regulation be approved that determines precisely from what percentage of interestA credit operation must be considered usurious, as it has existed for example in Italy since 2011.

“Many people still think that charging a 2,000% APR interest is legal if it is what you have signed,” laments Gabriel Rodríguez. And he advises seeking professional help to go to court, “since many entities have a whole orchestrated structure to take advantage of the victim that denounces in a particular way, through more misleading offers “.

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