Businesses that offer payday loans or cash loans, and the idea of these loans itself, have been receiving a bit of bad press in recent times.
Some people, and there are some financial experts too, are saying that these lenders are charging too much money towards interest and fees. It has been pointed out that many consumers are facing problems in paying off their debt in time because of the stiff conditions. So instead of financial relief, these people are going deeper into debt. It has thus been said that payday loans are not the solution to their financial troubles. We will discuss if this holds true.
Restrictions Imposed On Payday Lending Companies
Of course, the financial regulators had to do something about this. And so, eventually, restrictions on payday loans were imposed in many countries. In the United States, every single state has come out with their own laws to impose tight regulations and restrictions. It is clear that the authorities want to impose a tight leash on the lenders.
However, in spite of this, payday loans or cash advance loans remain extremely popular. It seems like, those who want cash in an emergency, want to depend on these companies. There has been no drop in the number of applications.
In fact, for many people, payday loans are the only way they can find relief from their short-term financial troubles. As a result, more lenders are beginning to offer these loans every day. There are more payday lenders in the world today than ever before.
Here’s What Happens When There Are Restrictions on Payday Lending
Payday loan companies are actually doing a great service to the society. Often this is not apparent till the time you bring in restrictions on their operations.
Take for instance what is happening in the United Kingdom these days.
The authorities and regulators have imposed several restrictions on payday lenders here. CFA or The Consumer Finance Association is reporting that there has been a 70% reduction in the total loan amount that is being approved every month, as compared to 2013, when the market was in peak.
So where are all these people going for the cash they need in an emergency? Conventional banks and lending agencies are often not the solution because they can take a long time in giving their approval. In an emergency, what you need is quick cash. Also, they would often reject applications. So clearly, they are not the solution.
People Are Turning to Loan Sharks and Falling Into a Debt Trap
According to findings of the first in-depth report on the short-term credit industry, many individuals who require fast loans are now turning to loan sharks in the UK. And these loan shark entities are charging hefty fees and interest rates, which are almost always much higher than what the payday loan companies charge.
But still, people are forced to approach these loan sharks, as these companies are offering the only way out to people facing a financial emergency. Also understand that loan sharks are illegal loan companies or individuals.
The problem seems to be growing too. In fact, it has been reported that more than 33% people reviewed, were considering approaching an illegal lender.
So clearly, the rigorous restrictions imposed on payday lenders are not working out for the people. They are becoming easy prey to the greed of loan sharks.
Here in the USA too there are loan sharks but since the lending industry is highly regulated the number of loan sharks is reducing considerably. Here is link to loan sharks in US: https://en.wikipedia.org/wiki/Loan_shark#Non-standard_lenders_in_the_United_States
In US, payday loan companies are legal business entities and their operations are closely monitored by the market regulators. These businesses follow all norms and regulations. Our lenders to are all licensed and qualified to do lending business in the US. We have lenders in all states where payday loan is legal.
Regulations Imposed On Payday Lenders and Their Effects
Recently, tight curbs were imposed on payday lenders in the United Kingdom. Penalty fees, interest rates and the overall cost was all brought under scrutiny. Financial Conduct Authority, which is the market regulator, made it mandatory for all lending agencies to get a license. Approved lenders were also made to pay annual levies.
The idea was to help customers get loans on better terms. As per the new regulations imposed, the cost for a loan of £100 for a month is just £24, if it is repaid on time. Previously, the cost used to be £30.
Of course this had a negative effect on the lenders. For instance, fortune of the Wonga lending agency nose-dived. Their pre-tax loss stood at £37.3m, as compared to a profit of £39.7m a year back, thanks to customer management fines and tougher regulator laws.
Why People Are Asking For Short-Term Loans
Families are managing finances differently these days. Economic recovery from the recession is still muted, and so, there is dearth of confidence among the consumers.
According to CFA’s Credit 2.0 report, household finances are under pressure because of increasing utility bills, climbing realty prices and increased travel expenditure. Rail fares have gone up as well by a staggering 23% in the last couple of decades.
Many people are wary of taking a long-term debt. Short-term alternatives are providing the financial lifeline to many individuals.
But what happens if companies that offer short-term debt are put under pressure? The result is out there for everybody to see.
If these companies are not able to offer loans for the short-term, then the consumers will go to those that can, such as the loan sharks. And most of them are not just illegal, but they leak their customers as well, through their steep interest rates and fees, thus making them go into a debt trap that is difficult to escape from.
Clearly, the imposition of strict regulations is not helping anybody.
What’s Happening in the United States?
In the US too, restrictions have been imposed on payday loan companies, though they are not as severe as the UK. Every state in the United States has its own regulations. Payday loan companies are happy to follow the set of laws. But of course, it is also important to safeguard the financial health of the industry.
Illegal lending is on the rise in the US as well. In fact, many people are already going to loan sharks for their short-term financial requirements here especially in states where payday lending is banned. That is surely a cause for worry. Why make people pay more needlessly? It is time the regulators cracked down on illegal lending, and appreciate the work done by legal short-term lenders link us. 🙂
Illegal lending is sure to go up if more restrictions are imposed on payday lending, just like what has happened in the UK.
Our advise is simple – do not take a loan that you cannot afford to pay. Read terms and conditions before taking a loan, if the payment terms are too strict or if the APR is just too high that you may not be able to afford, just reject the offer. No one can force you take a loan if you don’t want to take. Avoid going to loan sharks at any cost.
Understand that applying for a loan through us is free. Our lenders may reject or accept your application for loan. Now its on you to accept it or reject the loan offer after reading the terms. If you feel the repayments terms are too steep, just do not accept the loan. Its that simple. But the percent of people who reject our loan offer is next to nil because our rates are one of the low in the industry.
Thank you for visiting our website. Hope we helped you get a loan.