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Bank, parabank and loan company – who is who?



Times when the bank had a monopoly on lending has long since passed. Perhaps it is because sometimes getting a loan in the bank bordered on a miracle … Fortunately, there were opportunities to take a loan cheaper, faster and without unnecessary formalities. In addition to banks, loan companies and parabanks were established. And this in turn a little confused people in their heads …

Although everybody knows more or less what a bank is, the difference between a loan company and a parabank is considerable. How do we know that? We did small research using social networking sites;). The question was: What do you think is a parabank? See what the answers looked like:

Our research has shown that the terms “parabank” and “loan company” are treated as synonyms

The results are not surprising to us 🙂 Most of the respondents mistakenly identify the parabank with a loan company. Meanwhile, it’s two different institutions. Where did the error come from? Probably from throwing all non-bank companies into one bag. If something is not a bank, and grants loans, it must be a parabola – that’s how it would be logic. When reading articles on loans or various entries on blogs, it is perfectly clear that the terms “parabank” and “loan company” are used interchangeably. This has been going on for so long and is so common that it is no wonder that in the consciousness of society these concepts mean one and the same.

Since loan companies and parabanks are two different financial entities, what is the difference between them? To point it out, let’s start by explaining each of these concepts first.

Parabank – lends and collects deposits, but does what he wants

Parabank - lends and collects deposits, but does what he wants

In order to understand what a parabank is, it is best to refer to the documents of the Financial Stability Committee (KSF), which are the only ones that precisely define this concept. According to the act of the KSF from 2008, a parabank is an institution in which the client will find financial products, almost identical to those offered in a traditional bank . Parabank can therefore not only grant loans, but also accept deposits from customers. According to the banking law in force in Poland, this activity is reserved exclusively for banks or savings and credit unions. Parabank is neither one nor the other. Therefore, it is not subject to the regulations of the Polish Financial Supervision Authority. This means that he does not have to set a capital limit, keep secret information about his clients, and that no financial protection is available to clients .

All investments made by the parabank, ie, for example, lending are made from money obtained from customers. Deciding on such a system, every parabank client must reckon with the loss of some or all of the funds invested.

KSF warns that the parabanks work on the principle of a financial pyramid, which involves balancing on the edge of the law. As parabanks are not subject to any supervision, it is very easy to “cut” on their offer. Every now and again, in the media, we hear stories of people who suffered huge financial losses through parables. In order to respect the public against such institutions, the Financial Stability Committee publishes on its website the so-called List of Public Warnings. It contains a list of parabanks against which information about the possibility of committing a crime was filed.

No wonder, then, that parabanks are associated with people negatively. Unfortunately, this also affected the loan companies that operate on completely different terms.

Loan company – lends to anyone he wants, but he has rules

The Loan Companies Association maintains the Loan Companies Register where you check the credibility of the lender

A loan company, also called non-bank loan, operates under the Consumer Credit Act. This means, for example, that it can not charge interest greater than four times the lombard loan rate, and in each advertising material, the APRC should be reported.

This, of course, only some regulations. At the same time, it can be clearly seen that, unlike parabanks, loan companies adhere to some imposed guidelines. Who, however, makes sure that they fulfill their obligations? The Association of Loan Companies (ZFP) supervises the activity of non-bank companies . However, not all lenders belong to it. To become a member of the ZFP you have to undergo a very detailed verification procedure. The Loan Companies Association imposes strict membership rules. All this so that the prospective customer of the loan company can be sure that he will not be cheated by the lender. The register of loan companies belonging to the ZFP is available on their website.

What are the main characteristics of a loan company? First of all, it only grants loans from funds owned by the owners and shareholders of a given non-bank company. Therefore, the loan company does not take out deposits from the client and the risk of losing funds rests solely with the owner. The customer can therefore feel safe.

The bank has rules, stores deposits and, before it lends, it will check well to whom

The bank has rules, stores deposits and, before it lends, it will check well to whom

Our research has shown that a small proportion of respondents believe that a parabank is a kind of bank. This understanding of this concept is not only a mistake, but it can also lead to many deplorable consequences. In the interests of our readers, we have decided to mention the financial institution too. The Act of 29 August 1997 says that:

The Bank is a legal person established in accordance with the provisions of laws, operating on the basis of permits authorizing to carry out banking activities burdening the risk of funds entrusted with any repayable title. (Journal of Laws of 2002 No. 72, item 665, as amended)

The same act also specifies the scope of activities that can be performed by the bank. Belong to them:

  • receiving money from customers and issuing them at the customer’s request or at the end of a pre-determined period
  • keeping an account of the above payments
  • keeping other bank accounts
  • granting credits
  • granting and confirming bank guarantees
  • issuing securities
  • conducting cash settlements (eg mediation in transferring money, timely financial operations)
  • issuing payment cards and making their use available (so-called electronic money)
  • purchase and sale of monetary receivables,
  • providing safe deposit boxes, storage of valuable items
  • purchase and sale of foreign exchange values
  • granting and confirming suretie

As you can see, the scope of the bank’s operations is very wide. However, if we are talking about a bank in the context of borrowing money, we are only interested in one of the above items: granting loans.

To take a loan from a bank you must be an adult and able to perform legal acts, live in Poland and have a permanent, documented source of employment. In contrast, in loan companies or parabanks, information about employment is not always required.

Before you get a loan, the bank will check your creditworthiness, that is, determine if you are able to pay off your debt. Many factors contribute to creditworthiness, such as the amount of income or the age of the borrower. In addition, the banks will surely also reach the debtors’ register. If they find your name there, the chances of a loan will decrease significantly. And this is the next difference between loan companies and banks. Loan companies can check such registers as BIG or BIK, but they do not have to. Of course, they need your permission. Usually, one of the points of the regulations you sign when applying for a loan is connected with granting the lender approval for such action. Even if the lenders find their clients in the above records, they do not always take this into account. Therefore, it is much easier to get a loan in them.

Banks provide loans for a variety of purposes. So you can take a mortgage, cash, car loan, etc. To make sure that you settle your financial obligations, the bank also provides insurance for the loan and requires additional forms of security. This collateral may be a mortgage or a third party guarantee. Loan companies do not use such funds.

Banks provide very high loans. Therefore, the repayment period can be spread even for several dozen years. Loan repayments are usually made in installments, which are determined in terms of individual borrower’s possibilities. Non-bank loans in some companies can also be repaid in installments. In most cases, however, such loans are granted for very short periods – usually a month or two.

Considering all of the above-mentioned aspects, the entire procedure for granting a bank loan must take some time. However, not everyone willing to borrow it has enough. In loan companies or parabanks, the entire loan procedure takes even a few minutes. Therefore, those institutions are not successful only for those whom the bank refused to credit, but also those who are simply in a hurry. Unfortunately, rush is not the best advisor here.

While banks can rather be trusted, the other lending institutions should be approached with caution. It is better not to trust parabankos at all, and only to reach for loans in loan companies if we are really sure that we will be able to repay them in a short time.