Loans by text message send young Swedes spiralling into debt
STOCKHOLM (AFP) — Fire off a simple text message, wait 15 minutes and presto, 300 euros land in your account; the simplicity of obtaining SMS loans in Sweden is increasingly luring youths into debt.
"The first (SMS) loan was given in the middle of March 2006," said Janne Aakerlund, a spokesman for Sweden's debt recovery agency Kronofogden, adding that the first bill collectors were sent out just three months later.
Since then, the number of un-repaid text message loans has soared: in 2007, Kronofogden was tasked with collecting debts from 20,000 such loans, 35.9 percent of which were granted to people aged 18 to 25.
"There is reason to be seriously concerned about this development," head of the Swedish Consumer Agency, Gunnar Larsson, told AFP.
The new lending system, he says, has enabled people usually barred from receiving loans, like teenagers and other low- and no-income groups, to borrow cash in no time flat.
But then the loans, on average amounting to 3,000 kronor (320 euros, 500 dollars), along with average fees of 500 kronor and interest payments of 50 kronor, must also be repaid at a breakneck speed of just 30 days.
And if the loans are not repaid in time, borrowers are "trapped" in a vicious debt circle and are in many cases forced to take new loans to repay the sky-high interest rates and late charges that ensue, Larsson and Aakerlund explained.
"The loans are granted for one month and at the end of the month there's simply not enough money to pay back the loan and the fee," said Larsson, calling on creditors to improve their credit-checks before lending money.
Carl Rosenbaum, a spokesman for Mobillaan Sverige, the first company to offer SMS loans in the Scandinavian country in 2006, insisted however that the criticism was "exaggerated."
He pointed out that the loans, which also exist in the United States and several European countries, have been well-received by Swedes, renowned for high consumption habits and enthusiastic early-adapters for new technologies.
"The huge success (of the SMS loans) caught the authorities by surprise, and ... they did not know how to handle it," Rosenbaum said, explaining the criticism.
He insisted that the average age of his company's customers was 32, that their financial situation was scrutinised before they received a loan, and that the company's bad debt rate was less than 2.0 percent, "which is far lower than other companies in the unsecured credit market."
His comments are unlikely to reassure Swedish authorities, who are so concerned about the out-of-control debt build-up among some young and low-income Swedes that they in January banned interest payments superior to the cost of the initial loan.
The main danger of the new lending system is that it gives people "the possibility to get money very, very quickly, which is stimulating impulsive actions without thinking," according to Aakerlund.
And there are certainly plenty of people eager for a bit of quick cash at the touch of a cell phone button.
While Mobillaan Sverige was alone on the market when the loans first appeared in Sweden in March 2006, there are some 30 similar companies competing for customers in the country today.
Advertising for SMS loans beckons everywhere: with loud-coloured ads offering fast cash in subways, at bus stops and on the street, as well as in newspapers and on television.
"Youths are exposed to the pressure (to consume) as much as adults with full-time employment," said Dick Forslund, an economist preparing a doctoral thesis at the Stockholm School of Business, pointing out that for people with little or no income, SMS loans can look like an easy fix to their consumption woes.
"The thing is it's easy and fast. They (young people) are acting before thinking of the consequences," Amy Tran, a 20-year-old student, told AFP at a Stockholm shopping centre.
"They want to buy clothes, go to the bars, restaurant, travelling ... right now and not in one or two months," she said.
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"The first (SMS) loan was given in the middle of March 2006," said Janne Aakerlund, a spokesman for Sweden's debt recovery agency Kronofogden, adding that the first bill collectors were sent out just three months later.
Since then, the number of un-repaid text message loans has soared: in 2007, Kronofogden was tasked with collecting debts from 20,000 such loans, 35.9 percent of which were granted to people aged 18 to 25.
"There is reason to be seriously concerned about this development," head of the Swedish Consumer Agency, Gunnar Larsson, told AFP.
The new lending system, he says, has enabled people usually barred from receiving loans, like teenagers and other low- and no-income groups, to borrow cash in no time flat.
But then the loans, on average amounting to 3,000 kronor (320 euros, 500 dollars), along with average fees of 500 kronor and interest payments of 50 kronor, must also be repaid at a breakneck speed of just 30 days.
And if the loans are not repaid in time, borrowers are "trapped" in a vicious debt circle and are in many cases forced to take new loans to repay the sky-high interest rates and late charges that ensue, Larsson and Aakerlund explained.
"The loans are granted for one month and at the end of the month there's simply not enough money to pay back the loan and the fee," said Larsson, calling on creditors to improve their credit-checks before lending money.
Carl Rosenbaum, a spokesman for Mobillaan Sverige, the first company to offer SMS loans in the Scandinavian country in 2006, insisted however that the criticism was "exaggerated."
He pointed out that the loans, which also exist in the United States and several European countries, have been well-received by Swedes, renowned for high consumption habits and enthusiastic early-adapters for new technologies.
"The huge success (of the SMS loans) caught the authorities by surprise, and ... they did not know how to handle it," Rosenbaum said, explaining the criticism.
He insisted that the average age of his company's customers was 32, that their financial situation was scrutinised before they received a loan, and that the company's bad debt rate was less than 2.0 percent, "which is far lower than other companies in the unsecured credit market."
His comments are unlikely to reassure Swedish authorities, who are so concerned about the out-of-control debt build-up among some young and low-income Swedes that they in January banned interest payments superior to the cost of the initial loan.
The main danger of the new lending system is that it gives people "the possibility to get money very, very quickly, which is stimulating impulsive actions without thinking," according to Aakerlund.
And there are certainly plenty of people eager for a bit of quick cash at the touch of a cell phone button.
While Mobillaan Sverige was alone on the market when the loans first appeared in Sweden in March 2006, there are some 30 similar companies competing for customers in the country today.
Advertising for SMS loans beckons everywhere: with loud-coloured ads offering fast cash in subways, at bus stops and on the street, as well as in newspapers and on television.
"Youths are exposed to the pressure (to consume) as much as adults with full-time employment," said Dick Forslund, an economist preparing a doctoral thesis at the Stockholm School of Business, pointing out that for people with little or no income, SMS loans can look like an easy fix to their consumption woes.
"The thing is it's easy and fast. They (young people) are acting before thinking of the consequences," Amy Tran, a 20-year-old student, told AFP at a Stockholm shopping centre.
"They want to buy clothes, go to the bars, restaurant, travelling ... right now and not in one or two months," she said.
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Unfortunately, Sweden in general seems to always rely on their government when they find themselves in any trouble. Like taking out loans that any halfway intelligent person can see is economically unfeasible.
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