If we compare the Latvian credit services market with the credit markets of other countries of the world, we have to say that the Latvian market is saturated with many different financial products. http://highriverhighlandgames.com for more.
The Latvian credit market, so to speak, is still a major player in commercial banks with a capitalization of several billion dollars, but non-bank credit service providers have been operating in this market for a number of years.
Except for the fact that the capitalization of non-bank lender companies amounts to just a few million dollars, their activity, competitive advantage and effective marketing campaigns have managed to attract a significant number of clients and continue to do so.
From a theoretical point of view, long-term loans are loans that are issued for a term of more than one calendar year, while short-term loans are loans that are issued for a period of less than one calendar year, however, both concepts are increasingly used and bank and non-bank loans, ie long-term loans are considered bank loans and short-term loans are considered non-bank loans.
Needless to say, this is wrong. To understand the differences between these loans, let’s look at the characteristics of these two types of loans.
- Long-term loans are mortgage, study, student and investment loans;
- Long term loans are issued for a term of a couple of years up to 40 years;
- Long-term loans range from a few hundred to several hundred thousand dollars;
- Nowadays, most of the long-term loans are made directly by creditors in the banking sector;
- Long-term loans, if issued by a banking sector lender, have relatively low annual interest rates, or APRs, ranging from 5 to 30%, depending on many different factors;
- When borrowing a long-term loan, in most cases collateral, such as a pledge and / or surety, is required;
- Long-term credit issues such as the potential customer’s credit history and creditworthiness receive special attention, so if any of these are negative, the loan may be refused.
Long-term credit conditions and general economic conditions in the country have led to the establishment and development of the non-bank lending sector, which in most cases offers short-term loans. When comparing long-term and short-term loans in terms of their availability, short-term loans are more democratic because they are also available to those whose credit history and creditworthiness is not excellent. Thanks to this advantage, non-bank lenders have become competitive players in the credit market, causing the banking industry to fray and worry. It should be stressed that the banking sector is not the only one concerned about the growth of non-bank lending – the state is also working hard to limit the activities of non-bank lenders in every possible way.
- Short-term loans include overdraft, credit for working capital financing, and factoring;
- Short-term loans range from around $ 50 to $ 500;
- Short-term loans are issued for a repayment term, which in most cases does not exceed 30 days or one month. It can also be higher, but never more than one year – otherwise, as already mentioned, it is considered a long-term loan;
- Nowadays, most short-term loans are issued directly by non-bank lenders;
- The main, and perhaps the only, disadvantage of the non-bank lending industry is the high annual interest rates on services, which are often hundreds of percent, while banks offer their services at interest rates as low as a few tens of percent.
- It should be mentioned that penalty interest rates are also very high, and penalty interest rates are one of the most profitable sources of profit for the industry. To put it bluntly, non-bank lenders make most of their profits at the expense of the less affluent because they are able to give them what long-term credit lenders do not, in principle. It is for this reason that the creditworthiness and credit history of potential customers is of secondary importance.
Neither short-term credit nor long-term credit is bad or good in itself – it all depends on the borrower’s attitude to it, because, as everyone knows, any credit obligation requires a serious and responsible attitude – otherwise the credit history can be damaged and may also adversely affect future credit obligations.