Payday loans have grown from a niche lending solution to one that has been embraced by a large proportion of the population. The rise has been swift largely due to the lack of funding options on the high street.
Payday Loan Statistics
- Over 1.2 Million borrowers now use payday loans in the UK. Some people believe this figure will more than double in 2013.
- This equates to a staggering £1.2 Billion of borrowing from payday loans alone
- Average Loan size is £300
- The average payday loan customer earns under £25,000 although payday loans are becoming more prevalent with the middle income brackets
- Customers tend to return to lend over 3 times per year
- Over 65% of payday loans are taken out to cover unexpected bills or expenses. The majority are using it as a lender of last resort
- The pool of lenders is growing rapidly with over 200 lenders available in the UK
Why Have Payday Loans Become Popular?
Below average wage increases, increase in the costs of fuel and other consumer goods has led to a squeeze on the working and middle classes disposable incomes.
Homeowners can no longer use the rising value of their homes to finance their consumer spending. The noughties saw the property boom fund homeowners lifestyles via remortgages and property sales. The global downturn has halted this source of funding.
Credit crunch has also reduced the number of traditional lenders with most major lenders only lending to the very best prospects leaving 90% of the population without any credit alternative.
Remaining lenders are more stringent and less likely to lend leaving a credit vacuum that payday lenders have filled. Payday lenders have merely filled a gap in the market.
Advantages of Payday Loans
- Quick – Usually in the account same day
- No Credit Check – Most occasions lenders do not credit check
- Take Most Borrowers – Applicant must be employed, have a bank account
Disadvantages of Payday Loans
- High interest rates
- Can become onerous if payment terms are not kept
The Future of Payday Loans?
Regulation will rid the market of less scrupulous lenders. this will protect the consumer and the lenders who provide a fair service.
Increased competition will reduce costs to consumers, this should lead to lower rates, however this will depend on the level of regulation involved.
Continue to grow in popularity as long as traditional lenders don’t offer an alternative. Consumers need payday loans and until this need is satisfied by another source they will continue to flourish.