How to Legally Avoid Paying Microloans

Borrowers can challenge not only microloans taken out fraudulently without their knowledge but also those taken out independently. We explain in which situations it is possible to cancel microloans.

Situations in Which a Microloan Can Be Challenged

Contract Terms Contradict the Law

A contract may be declared invalid in court, and the borrower will not be required to return the money to the microfinance organization if the terms of the contract or the fact of signing the contract contradict the law. For example:

• The company signed a contract with a person officially recognized as legally incapable due to a mental disorder.
• The microfinance organization signed a contract with a person who could not make considered and conscious decisions at the moment of signing the contract (even if the person is legally competent). For example, if the borrower was intoxicated.
• The terms of the contract contradict the law: for instance, the microfinance organization issued a microloan at 5% per day, although there is a legal limit on the maximum interest rate. Or the microloan was issued secured by an apartment or a share of it — this is also illegal.
• The microloan was issued by an illegal microfinance organization. By law, if the organization is not included in the official registry or has been removed from it, the contract is considered invalid because the organization is not authorized to attract funds.
• The microloan was taken out under pressure from fraudsters. If a microloan is taken under deceit, the court may declare the transaction invalid.
• A microloan can also be challenged in court if it was issued under extremely unfavorable and difficult-to-fulfill conditions. Or when a person was forced to sign the contract. That is, the microfinance organization took advantage of the borrower’s difficult life circumstances and offered deliberately impossible conditions.

The court considers each situation individually. The judge will not declare the contract invalid if it is a standard agreement and the borrower had the opportunity to refuse to sign it. Moreover, the plaintiff’s legal or financial illiteracy and lack of specialized education are not grounds to declare the transaction invalid.

How to Go to Court and Get Rid of a Microloan

If the situation fits one of the above scenarios, you can go to court to challenge the microloan. Before going to court, it is necessary to consult a lawyer or attorney: they will help analyze the specific situation in detail and prepare documents for court if there is a chance the transaction can be declared invalid.

What to Do If a Microloan Cannot Be Challenged

If the microloan was taken voluntarily from a legal microfinance organization and the terms and circumstances of the agreement do not contradict the law, it must be repaid.

Do not take out new microloans to pay off old ones. Interest rates on microloans are high, and interest accrues daily. In this case, there is a high risk of falling further into debt and increasing the total amount owed — especially if the borrower has many microloans, for example more than 10–15.