The use of payday loans has quadrupled in the past four (4) years and are continuing to be a new source of borrowing for consumers.
There has been many changes over the past five (5) years in the banking and lending community, much of this due to our changing economy.
Due to the economy slipping near a recession, and jobs being lost, many people have found themselves struggling to pay their bills and debts, and many struggling just to get by.
The rising costs of petrol, gas to heat our homes, electricity, and car insurance coupled with people losing their jobs due to redundancy, has brought about a wave of home repossessions, and people seeking relief from their debts in some form of insolvency, such as bankruptcy.
Next up we have the banks tightening up the reins on lending, or the “credit crunch” as we have heard time and time again.
And yet, we still need to borrow, we need access to credit; for whatever reason.
But what these changes and financial disasters has done, is to create a very different borrower, and to meet this new type of individual that still has borrowing needs, and a need for credit, the banks, lending companies, etc, needed to change and morph as well; they needed to come up with a loan product that fit the needs of the new borrower/consumer.
Think of it as evolution, a bit of Darwinism. An animal needs to change with the times, climate, etc, or become extinct.
So lending needed to change.
Think of it like this:
Poor credit + rising costs of living (we still need to borrow) x need an answer/approval quickly + need the cash fast (no waiting for days) = Payday Loans.
Payday loans are nothing new, but as a lending product they have come of age, especially in the computer age. Could have imagined 20 years ago, sitting at home, on a computer applying for a loan, being approved and having the money in your account all within an hour!
Does it sound too good to be true, well it is true, but there is a cost, a price to be paid. And that price is a high interest rate, in some instances, very high. APR’s as high as 1,700% or even higher 2,900%!
But these are APR’s, annual percentage rates. Payday loans are stated to be only used for short-term needs or usage.
Basically how a payday loan works is this:
If you are working and earning a wage and have a bank account, you basically qualify for a payday loan. You borrow an amount you require, usually less than £1,000, and pay it back on your next payday along with the interest or fee that is charged.
And having poor credit is not an issue.
But are people seeking payday loans, and applying for them, oh yeah, big time!
Halifax Bank did a study which showed that many British workers were skint just 17 days after they were paid! So in essence, they still have the second half of the month to go.
And where do many of them go to finish that month, payday loans.
Shelter, a housing charity in the UK stated that almost one (1) million people in Britain have taken out an emergency payday loan to help them pay their mortgage in the past year.
The charity also stated that seven (7) million people have been relying on some form of credit to help pay their mortgage and/or housing costs.
Shelter’s findings were based on a YouGov survey of over 4,000 people.
The numbers don’t lie.
Nick from paydayloans.co.uk has stated that the increase they are seeing in the number of people seeking payday loans, seems to correlate with the economic downturn, and the fact that when a person needs a loan quickly, say for a car repair or other emergency, they cannot wait around for days to get approved.
Here are some recent statistics:
Annually 1.2 million people in the UK use payday loans as a means of getting by.
A total of £1.2 billion is borrowed in the form of payday loans each year in the UK.
Interest rates can be very high, over 2,000% APR.
According to a consumer watchdog group, the number of people using payday loans has quadrupled in the last four (4) years.
That is a massive growth.
So 20 years ago we could not have imagined things today; loans in an hour.
What will the next 20 years bring? Maybe banks and lenders will anticipate your borrowing needs and just send you the money. Your account starts to get a bit low, and hocus pocus, alakazam, there is money magically placed in your account.
But what would be the interest rate??
This article was written by Nick Zapolski of www.paydayloans.co.uk