In Spain, any person or company can dedicate themselves to lending money, an activity in which companies that offer online mini-credits have proliferated in recent years. A product that can be much more expensive than the credit granted by financial institutions, which do operate under the supervision of the Bank of Spain. The speed in obtaining the loan and increasingly aggressive advertising are the bait for consumers with urgent economic needs, especially those who have been turned off by traditional banks.
In its latest microcredit barometer, the Association of Financial Users (Asufin) concludes that this year the cost of 7-day loans has skyrocketed, going from an average APR -which includes interest and commissions- of 70,386% to almost triple , at 185.011%. Inverse trend to that registered in medium-term credits -with a 30-day repayment-, whose APR falls slightly from 3,350% to 3,243%.
However, the association warns that the main drawback of mini-credits is late-payment interest. “Thus, a loan of 300 euros, which has generated up to 105.00 euros of interest in one month, can rise, six months later if it is not paid, to 4,946.37 euros; that is, in 7 months, it has multiplied its cost by 16.7 times”, the association gives as an example.
Even when returned within the agreed time, this product "is more expensive than a credit card, whose Equivalent Annual Rate (TAE) can range between 18% and 22%," says Patricia Suárez, president of Asufin. While in the case of a consumer loan, the APR is usually between 7% and 9%. “The shorter the repayment term, the more room companies have to apply a higher interest rate,” she adds.
In contrast, the APR of mini-credit contracts "sometimes can be 1,000%, 2,000% and 3,000%," admits the president of the Spanish Association of Microloans (AEMIP), which represents 10 of the 16 companies in the industry in Spain. Alisa Cevere explains that to calculate the APR "a formula designed for products with a repayment term of at least one year is applied, so if it is applied to a loan to be repaid in 30 days, the formula extends this amount to absurd numbers ”. According to data managed by the association, in 2021 the average interest for a mini-loan with a repayment period of one month amounted to 33%. An interest rate "higher than that of a card because the product is aimed at a different customer," she acknowledges, "but there is no case in which interest of 300% or 1000% has been paid."
Mini-loan interest works, Cevere argues, in a similar way to the hotel market. "If we are going to multiply a night in a hotel by 365 days, we will get a barbaric amount, so it cannot be compared with the price of a rental for the whole year," she defends. In any case, the sector maintains that the price it charges for its loans is justified for several reasons, among which are the fact that the cost of financing private companies operating in this market is higher than that of banks and the investment in automatic systems that make it possible to decide whether to grant a loan – designed for clients with an urgent need – in a few minutes.
The general secretary of the National Association of Financial Credit Establishments (ASNEF), Ignacio Pla, assures that in recent years companies that offer loans without supervision from the Bank of Spain "have sprung up like mushrooms." The main reason, he warns, is that Spain is the only country among the main EU economies "where there is no reserve of activity to lend money." As they are not regulated or supervised, "this type of activity does not have to comply with the same regulations that regulated entities comply with", so the consumer "is more unprotected".
In this sense, regulated entities are obliged to assess the solvency of the client and offer them a service to deal with their claims. Likewise, Pla recalls that there have been rulings that have declared usury for some products, such as revolving, considering in the most recent resolution of the Supreme Court that an interest rate above 32% could be usury, "something that entities that lend at 1,800% APR and 3,500% APR, nobody says anything to them," he laments. "No default justifies such a high interest rate," Pla asserts.
Both ASNFE and Asufin warn of the risk of over-indebtedness to which clients are exposed who, having been denied loans in entities regulated by the Bank of Spain, resort to mini-credits. "We claim that for the same activity there are the same rules for everyone and the same supervisor," Pla demands.
From AEMIP they agree that their activity be regulated, but they ask for "flexible regulation" for microloans. Specifically, "that for loans with a repayment period of less than one year it is allowed to use the total cost formula instead of the APR, which is not representative", they claim, while denying that they grant loans in a cheerful way: "Seven out of ten loan applications we deny them."
