No matter how difficult most financial companies have been finding it for the last few years, there is one aspect of the finance industry that has seen phenomenal growth in that same difficult period. That is the payday loans industry with an estimated annual turnover of 1 billion pounds in the UK alone each and every year. Month on month there are new lenders entering into the market place and the existing lenders are also increasing their appetite.
So where did they come from and why are they so popular?
Payday loans or instant cash advance loans as they are sometimes known originated over in the United States where they have been popular for a great many years. When the credit crunch started to take effect the American lenders saw that there was also a viable market in the UK and set up shop over here. As more and more people started to take advantage of this type of loan new lenders started and to jump on the band wagon and set up in business. That however does not explain why the industry has turned into the monster that it has.
This has come about for a number of reasons some of which are detailed below;
1) Easy to arrange: Arranging a payday loans could not be simpler, in most cases all that is required is the submission of a short application form online. With no further documentary evidence required for many and an instant online decision.
2) Quick payout: With online approval and same day payout, they are a very convenient way of dealing with any short-term emergencies that tend to occur every now and then. Most of the loans that are taken out are taken out for the purpose of emergency car or boiler repairs, and the like, they can however be taken out for any purpose whatsoever.
3) Easy to understand: Most payday lenders charge a flat fee based on the amount that you borrow i.e. for every 100 GBP that a person borrows they will be required to repay 25 GBP in interest. This means that applicants know exactly what the loan is going to cost them even before they apply.
4) Repaid in 1 instalment: Because the loan is repaid in full on the applicants next payday there is no long term effect on their finances.
5) Not too many other options: As a result of the credit crunch there are not too many options available to people who are looking to borrow smaller loan amounts, because most of the unsecured lenders have now stopped lending and the secured loans lenders are only interested in loans above 5,000 GBP.
6) They are cheaper: When you look at the actual cost of borrowing the money, instead of the ridiculous APR's that the lenders are forced to advertise. They are in fact a very competitively priced product.
When you take all the above into consideration it is no surprise that payday loans have become so popular, and with no sign of any changes in the immediate future for the rest of the UK finance industry. There is every chance that the industry will continue to grow.