These are the reasons why you should not ask for an informal loan

The advertisements for “fast”, “easy” and “without requirements” loans, in most cases refer to informal credits.

This type of credit can be loans between family or friends, but they could also become inconvenient and even fraudulentin some cases.

For this reason, informal loans can be risky for the pocket and the security of Peruvian households and companies.

Informal loans, as they are not supervised by the Superintendence of Banking and Insurance (SBS), do not have an appropriate credit contract and, often, the appropriate terms are not established.

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Among the terms that an appropriate contract must have are; interest rates, commissions, penalties, collection mechanisms, among others.

Data and comparison

According to the Central Reserve Bank (BCR) survey conducted in July 2020 of micro and small businesses in the commerce, manufacturing and agriculture sectors, it found that informal lenders place loans between S/ 100 and S/ 10,000 with an interest rate of around 20% per month.

This interest rate can reach disproportionate levels, because the cost of the credit accumulates the interest generated from the previous month. For example, an informal loan of S/ 100 could become S/ 900 after a year.

In contrast, the annual interest rate on a formal loan, on average, is between 23% for small businesses and 44% for micro-businesses. In this way, a formal loan of S/ 100 would mean, on average, between S/ 123 and S/ 144 after a year.

So, an informal credit can be more than 20 times more expensive than a formal one. In addition, according to the BCR, non-payment is associated with “criminal collection mechanisms”.

For all of the above, it is important to take advantage of new information technologies to achieve the financial inclusion of more people and companies. This is still a work in progress, which will help the most vulnerable to access cheaper and safer formal credit.