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Taking out a loan several times a year 

Taking out a loan several times a year 

According to bank, about 1.5 million fast loans were issued last year, which is almost five times more than in 2011. The Association of Fast Loan Lenders does provide a more modest figure on its website, though the forecast is about 500,000. Wherever it is true, it is safe to say that three quarters of the two million people in Latvia have not one quarter.

Rather, there is a tendency for borrowings to be borrowed several times a year, and probably also by various lenders for a “first loan” discount. It’s not so different in America – in some states, up to 76% of loans come from repeat borrowers who can’t repay those loans. While this raises concerns about both the material condition of these borrowers and what happens when they are no longer able to pay off their loans, taking out a loan several times a year can have a long-term negative impact on the lender’s market.

Forecasts of the Fast Loan market in Latvia

Forecasts of the fast credit market in Latvia

DALAK forecasts that the Fast Loan market could grow by another 30-40% this year. Although the annual accounts of companies are not yet available, there is no reason not to believe such a figure, since it can be assumed that at least approximate information on current revenue is available to the association. If we were careful, it would take us to about 700,000 loans in 2012. Not bad for a country with two million inhabitants.

But what would happen if the market were to be found to be saturated for some time? Why not burst this “Fast Loan bubble” when those who have borrowed several times a year will no longer be able to repay their loans? And what would happen if the government were to re-intervene in this market, for example, by setting credit ceiling caps for non-bank lenders?

If a borrower borrows a quick loan more than once or twice a year, it can already be said that he has financial problems and it is only a matter of time before that customer can no longer borrow enough to cover his current debts. An increase of 30-40% per annum is of course a nice indicator, but Fast Loan would be hard to name as “Nokia” in Latvia – this growth in the industry is definitely not sustainable. When existing borrowers are no longer able to repay, the industry will shrink.

Summary

Summary

The industry is likely to grow for another one to two years, but then shrink to, for example, 2010 or 2011, as there is reason to believe that the market is already very saturated, and it will be difficult for lenders to find new customers in the market.

The government will hardly interfere in the business of non-bank lenders, but if this were to happen, for example, by setting a ceiling on interest rates on loans, major players would certainly increase overseas market penetration, which could turn it into a lucrative but profitable export service. Company that owns MMScredit, already operates in six countries. Let us hope that this trend will continue and that other lenders will start to gain in the market.