AZE.US
Honored Azerbaijani journalist Elchin Alyoglu has criticized the high cost of short-term online loans, highlighting an example in which a borrower receives 500 manats ($294) but may be required to repay 710 manats ($418) under certain terms.
The difference is 210 manats ($124), or 42% of the original amount.
The main attraction of microloan services is speed. Applicants may need little more than a mobile phone, an identity card, a bank card and an electronic signature to receive money.
That convenience, however, can obscure the central risk: borrowers focus on how much they can receive immediately but may not fully assess the total repayment obligation.
“A person takes out a loan because they do not have 500 manats today. But if they must repay 710 manats after 45 days, where will that money come from?” Alyoglu asked.
He warned that borrowers who cannot repay on time may take out another loan, creating a debt cycle in which new borrowing is used to cover earlier obligations.
How 500 Manats Can Become 710
In one calculation cited by Alyoglu, the repayment amount increased with the duration of the loan:
- After 15 days – 590 manats ($347);
- After 25 days – 630 manats ($371);
- After 35 days – 670 manats ($394);
- After 45 days – 710 manats ($418).
The final example represents a 210-manat overpayment, equal to 42% of the amount received.
Part of the cost may be labeled interest, while another portion may appear as a service fee or commission. Alyoglu argued that the terminology makes little practical difference to the borrower, whose budget is affected by the total amount due.
Loan products and terms can change, so applicants should always examine the current contract and their personalized total-cost calculation before accepting an offer.
Another Example: Repaying 647.50 Manats
The current description of the Manato.az application provides an example involving a 500-manat loan issued for 120 days.
At an annual rate of 120.98%, the listed total repayment is 647.50 manats ($381). The product description states that the maximum annual interest rate can reach 185.34%.
The overpayment in that example is 147.50 manats ($87).
A high annualized percentage does not mean a borrower will necessarily pay 185% of the principal over a period of several months. It does, however, provide a standardized measure for comparing the cost of short-term credit with other financial products.
Nominal and Effective Rates Are Different
Another concern is the difference between nominal interest and the effective cost of borrowing.
Advertisements may prominently display a nominal rate, while commissions, service charges and other mandatory expenses increase the borrower’s total cost.
Consumers should therefore examine the effective annual percentage rate and payment schedule rather than relying only on the largest number shown in an advertisement.
The simplest test is to compare two figures: how much money will actually reach the borrower’s card and how much must ultimately be repaid.
Loan Portfolio Exceeds 1 Billion Manats
Alyoglu also cited Central Bank data showing that 54 non-bank credit organizations operate in Azerbaijan.
Their combined loan portfolio has reached approximately 1.05 billion manats ($618 million), according to the figures he presented. Consumer loans account for about 729 million manats ($429 million).
Such lenders are popular because their services are easy to access. Decisions can be made quickly, collateral is often unnecessary and the entire process may be completed through a mobile application.
Fast loans are especially attractive to people who have been rejected by banks because of insufficient income, limited credit history or a lack of formal employment. Those borrowers are also the most vulnerable to high-cost debt.
Expensive Money for Those Who Have the Least
Alyoglu described the market’s central paradox: people with stable incomes and strong credit records can borrow at lower rates, while those already facing financial hardship are offered the most expensive money.
A loan issued within minutes can temporarily cover medical bills, utilities or an urgent purchase. But without a clear source of repayment, fast credit may simply postpone the crisis for several weeks while making it larger.
Before signing, borrowers should verify the total repayment, effective annual rate, every commission, late-payment penalties, early repayment rules and the consequences of extending the loan.
The main question should not be, “How quickly can I get the money?” It should be, “How much must I repay, and what income will I use to repay it?”
AZE.US