Short term loans with massive interest rates
People are being warned to be careful of a new online lending service which encourages bad habits.
Monday, June 20th 2011, 10:08AM
Finnish firm Ferratum Group has set up its mobile microloan service in New Zealand offering cash to borrowers at high interest rates.
Ferratum says it offers "Kiwis a quick fix solution to urgent financial problems" by providing short-term, unsecured quick cash loan by a mobile phone.
It is offering loans of up to $600 for terms of one day to 30 days, but says that it may look to loan bigger amounts to existing customers in the future.
While the system is a good example of how mobile phone technology it being used it's not a great way to improve New Zealander's financial behavior, interestrates.co.nz publisher Philip Macalister says.
"Services like this are encouraging people to take on unnecessary debt and to treat money like it is something that grows on trees," Macalister says.
He is critical that the Ferratum website doesn't make clear what rates of interest and fees people are paying.
"It's like send a text and free money appears in your account."
"To find out what the interest rates are users have to read through an 18 page terms and conditions document. This is not the easiest thing to do on a mobile phone."
In the schedule (see here) interest rates range from 91% for $100 borrowed for seven days through to rates of more than 500%.
Ferratum New Zealand director and country manager Richard Yoon says "this kind of access to emergency cash has been hugely beneficial to our customers across Europe. If you were in a supermarket with a trolley full of groceries and your EFTPOS card was declined, literally within a couple of minutes of sending us a text you could have available funds to complete the purchase."
"New Zealand consumers are well protected by strict financial regulations and the robust legal system makes the country a perfect choice for financial services organisations to establish themselves."
Yoon says early indications show that Kiwis will be quick to pick up this new and fast mobile cash loan service, which he believes could eventually be extended to include other loan products in the financial market.