Credit can be an opportunity to boost a business and family economy, or it can be the cause of its destruction. What does the result depend on? The type of loan and the conditions under which it is granted, only to reduce the risk to our pocket and not jeopardize our business. That is, our finances are in good hands.
During the last months in Nicaragua a phenomenon has grown that could knock on your doors at any time, so you should be alert: the growth of informal credit, which might seem like a viable option at first sight, but that is cause for reflection. Let’s start by clarifying:
What is a formal credit and an informal one?
The formal credit is granted by the institutions duly formed, registered and supervised by the National Microfinance Commission (Conami) or by the Superintendency of Banks and Other Financial Institutions (Siboif). That is, it has regulation and rules to follow.
Informal credit, on the other hand, is that given by any person or company (legally constituted or not) and that does not comply with what the laws of the country require in the matter.
Generally, informal credit does not require many requirements or time to surrender, which, from being positive, can be a cause to alert because it does not allow you to know where that money comes from. It could even come from illegal activities and you would be contributing to “clean it up”.
Also, because many of these loans are paid daily, it is not detected how expensive it can be. To give you an idea: if a credit charges you 10% daily, we would be talking about 3,650% interest per year! And even if 10% were monthly instead of daily, we would be talking about 120% annually, much more than any formal credit can charge you.
Such an interest rate is unsustainable for any business or salary, which will sooner or later lead to serious financial problems, over-indebtedness and material losses.
To this we must add illegal practices such as the capitalization of interests and violent forms of collections and intimidation, which, because they are not regulated by any institution, there is no way to avoid them.
Why choose a formal credit
The loans that microfinance and financial institutions give under regulation give you more advantages, including:
- Protects you. By having an institution that monitors formal institutions, you can enforce your user rights.
- The origin of money is cool.
- You create a credit history that multiple institutions have access to, expanding your financing options and it becomes your cover letter.
- If you honor your commitments, you create a long-term relationship, which could help you meet bigger goals such as improving / acquiring a property, buying machinery, expanding your business, increasing inventory, among others.
- There is before acquiring the advice since credit. Since you approach to apply for a loan and consult your current indebtedness and history, they prevent you from being unable to pay, which is made known to you and they tell you what options you have.
- Interest has state regulation and oversight. They cannot change your password after signing a contract.
- There are numerous credit options that fit the needs of each user.
- There are limits to the forms of collection.
- Keep your finances healthy. If all your credits are formal, it is easier to avoid overindebtedness.
Remember that the decision to acquire a loan is not something to be done in a hurry or to get out of trouble. There are many things to analyze in addition to the use you will give, including knowing how to differentiate whether it is formal or not and what will be the consequences of the decision you make.
Also, keep in mind that formal credit must be taken care of by honoring our commitment, so that you can continue to have it available.