Well, then it was time again. SVT’s morning news reports say that the new government should take a closer look at the high interest rates on sms loans, as it is the interest rate’s fault that some people cannot afford to repay their sms loans. The government has been considering setting a ceiling for how high the interest rate may be since, according to SVT, it is usually several thousand percent. Of course, we at Ankamar think it is really great if they set an interest rate ceiling for sms loans that prevent too high loan rates (it only benefits us who want to take a sms loan), but there are several errors in the government’s and SVT’s reasoning.
Why it is not possible to reason like this
Firstly, there are very few SMS loans that have an interest rate of several thousand percent. The most expensive sms lender you will find here at Ankamar has an effective interest rate of just over 1400% and the cheapest around 100%. In addition, there are sms loans that have an interest rate of 0%.
Secondly, it is always silly to talk about effective interest rates when talking about sms loans that have a loan period of 1 week to 3 months. The effective interest rate shows just how much you would pay in interest if you take out a loan for one year, but since you do not borrow money for a whole year, it is just silly to talk about annual interest or effective interest. If a sms loan of SEK 10,000 for 30 days has an effective interest rate of 219% (such as Vivus has), you pay SEK 1,000 in interest, that is, only 10% of the amount you have borrowed.
Talking about the effective interest rate for such short loans
It would be like basing the effective interest rate on 120 years for a private loan that you put up for 10 years, ie twelve times as long as you do with a one-month sms loan when calculating the effective interest rate. Then a private loan with an annual interest rate of 5% would have an effective interest rate of 600%!
Thirdly, it is hardly the high interest rates that make some unable to repay their sms loans. For example, if you pay a full SEK 1000 in interest on a loan of SEK 5000 and after the new rules only have to pay SEK 500 in interest, it is only a difference of SEK 500. We don’t think this makes a big difference. What makes people sometimes unable to pay back on their sms loan is that they do not intend to before they borrow, they take a sms loan even though they are not sure that they can repay the loan. So it will probably continue to be even if you set a ceiling for sms rates.
But certainly we welcome a loan ceiling only if it does not become absurdly low as in such cases it would not be profitable for sms lenders to lend money because the loan period is so short.