How payday loans still have a place in the economy

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For many years payday loans have played a role in our economy. The ability to obtain cash quickly and with little fuss has become a common place resource to customers as this market has grown. As a result many consumers now use payday loans on a regular basis. The appropriate usage of these loans provide has long been a debated topic, with mixed opinions being formed regarding the product as a whole. It is fair to say this market for short term borrowing has come a long way since it first came into existence about a decade ago. In fact many lenders now offer a very different product to the original style of payday loans offered. The change of product and approach now used by lenders is finally starting to shake some of the more negatives opinions which had become formed but it is still fair to say the topic of these loans remains a highly debated one. For consumers using these loans there are certainly benefits providing the reason for borrowing is suited to the product which is on offer. In simple terms this means remembering these loans are designed to be used for a short and specific period of time to cover emergencies. It is important to use these loans as they were designed to be used; for a short term financial need. Providing this is the intention of the consumer, the loan will certainly serve to be useful. Read on to find out mor about these loans.

The fact that some consumers have found themselves struggling to maintain repayments with these lenders is of little surprise given the modern day consumers spending habits. The economy is more difficult than ever and the cost of living is seemingly continuing to increase, making the ability to budget effectively a more and more difficult task. Many consumers now have many costs associated with the cost of living due to the fact that we live in a world where you can buy now and worry about paying later. Many consumers have an array of financial agreements before even considering short term borrowing. For example it is now common place for a consumer to purchase a car through the use of credit also most consumers have access to a credit card and these are just two of many examples. The fact is consumers are presented with options to obtain credit all the time. The massive rise of the internet plays a very large role in this shift in spending habits. Before the internet became part of our everyday lives consumers were far less able to making purchases whenever they wanted. In reality most purchases were made in person at the high street or over the phone in some cases. As a result and if nothing else this meant consumers could only make purchases whilst the high street shops and companies were open. This also used to mean committing yourself to look for a purchase, whether that be by walking, driving or getting on a train; you had to move to get to a place where a purchase could be made.

Nowadays this is quite simply not the case, in fact the internet and the access to it on clever smart phones means in fact, we can buy 24 hours a day if we wish. Many companies now exist solely online and therefore purchases can only be made in this way. Take the likes of Amazon and EBay, you wouldn’t find them on the high street and quite frankly you wouldn’t need to. In fact companies like this have been hugely successful without having to communicate with their customers face to face. This I think is the key to the change in consumer spending habits in fact. The internet completely eliminates the need to communicate when making a purchase and it seems consumers now prefer it that way. It is therefore little wonder that many consumers use online facilities to make many if not all of their purchases. Whether it be food, clothing, furniture, a car or anything in between, consumers are now fully comfortable with conducting transactions in this way. As a result there has been an increase in consumers making purchases on credit over the last decade. This could mean a credit card, payday loans or even an account with a clothing brand. In any case consumers are increasing their budgets to accommodate these expenses now on a regular basis.

Why payday loans work in the economy

For many years now obtaining finance or credit has been common place for consumers. Although it is always recommended that monthly commitments on a whole be kept to a minimum, for many this is simply not possible. Take normal living expenses for example, for many consumers an average budget is likely to include the likes of rent, gas, electricity and water at the very least. All of these things are paid via monthly instalments. Without the facility to pay monthly many consumers simply would not be able to survive. That said many consumers are now also facing repayments towards other types of credit on a monthly basis. This could be related to travel such as car finance instalments, furniture such as kitchen or bathroom refurbishments or of course general loans. In reality the current economy actively encourages consumers to exist through the support of credit. We move live in a world where you can buy now and simply repay later. The introduction of payday loans is no different is many respects. Consumers expect to be able to get what they want and quickly.

Payday loans were first introduced about a decade ago at a time when obtaining a small amount of credit was not something typically available. The use of the internet as part of our everyday lives was increasing and the introduction of these loans was ideally timed. Payday loans meant consumers could with little effort obtain a small loan via an online application. Given the amount the loans were for and the nature of the product being offered, the application process was very simple. The online forms took no more than 10 minutes in most cases and successful applicants could expect to receive the funds into their accounts in a matter of hours. As a result these loans became massively popular very quickly. The concept of the loans worked on the understanding that, if successful, the customer would simply repay the loan in full, on their next pay date. This meant the total time of the loan agreement was no longer than 31 days and in some cases the loan agreement was for a much shorter period of time. When payday loans were first introduced the interest payable was typically very straight forward. A borrower could expect to repay in the region of £30.00 for each £100.00 that they borrowed. This meant a £300.00 loan would cost in total £390.00 and was payable as a lump sum on the next employment pay date. For those consumers who later discovered they were unable to repay the loan as a lump sum, the lenders offered a repayment known as an extension as an alternative. An extension allowed the consumer to simply repay the interest on the due date of the loan and extend the contractual repayment until their next pay date. In the example of a £300.00 loan, this meant paying £90.00 on the due date and extending £390.00 until the next due date.

The style of these loans over time became dated as it was discovered, like so many other purchases, the concept of a lump sum was not affordable for many and instead extensions were being repeatedly used. Of course an extension did not reduce the amount which was owed and simply served to delay and increase the total amount payable. As a result many consumers felt they were trapped in a cycle of debt. As the years have passed and certainly in recent years the product being offered by lenders has changed to more realistically suit the needs of customers. Nowadays payday lenders are staring to offer instalment loans. The majority of lenders in existence now have moved away from the old model and instead offer their customers loans over a number of instalments. Depending on the lender there are a number of repayment options. Some offer payments over 3 months, 6 months or even 12 depending on the needs of the customer. Ultimately these loans are far more flexible and better able to fit into the monthly budgets of the consumer. It should however be noted that this additional flexibility comes at a cost. The longer you take the loan over the higher the overall cost will be.

As time passes it is likely as a nation we will continue to make purchases and enter into agreements where repayments are made on a monthly basis rather than as a lump sum. With this in mind it is likely as payday loans continue to evolve that they will remain a useful resource to many consumers. Providing they are used as intended; over a short period, it is likely consumers will in turn, will keep using them. .