A lot has been made of the payday loan industry and its abuses. Certainly there have been some lenders who have taken advantage of consumers. The government and indeed the industry itself have worked hard to impose punishment on those lenders or otherwise enticed them to change their ways. But the payday loan industry has emerged as a popular target for politicians who need an enemy to pursue in an effort to win votes.
So why payday loans? Generally it’s the perceived high interest rates. And yes, they are high. But so is the risk the lender takes by lending the money. It would be fairer to redefine the charges as fees, rather than turn them into APR’S (annual percentage rates) when the term of the loan is in fact less than a month.
So why have payday loans become so popular? And, not just in the United States, but in Europe as well? There are numerous reasons for that, including convenience and speed of delivery, but there are other factors as well.
Banks have left many neighborhoods which means that credit is hard to find for many consumers. The big banks can also be a bit rigid in their products too. They don’t offer products with the flexibility of online payday loans.
This prolonged economic downturn (we’ll let the economists define it) has taken many people who previously had stellar credit records and frankly, made a mess of their credit. Unemployment, stagnant or worse decreasing wages have conspired to create millions of people who no longer obtain traditional credit. So what are they to do?
The online payday loan market has emerged to fill in this gap in lending. Their products are accessible to the underbanked and that goes a long way to explaining their popularity.
The online convenience and speed of approval and loan dispersal are also two major reasons payday loans are soaring in popularity. Other institutions cannot touch these benefits.
So at a time when traditional banking has let them down, payday loan lenders have stepped up to fill the needs of millions of people.
So the reasons for the growth of payday loans are clear.
Their meteoric rise in use in combination with some unscrupulous lenders has captured the attention of various levels of government. It seems everyone wants to regulate the industry. As a result, the Online Lenders Alliance has developed new, more restrictive advertising and marketing guidelines for its members to follow.
The guidelines were created to improve the consumer experience and to show industry watchers that the payday loan industry that they can police themselves.
Of course no one knows exactly what the future holds for payday loans, but a couple of things are clear. One, the demand for short term, no-collateral loans is growing and two; it seems a foregone conclusion that some type of federal governmental intervention is on the way. Many states have already places guidelines and controls on the industry. Expect to see more.
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