Those moments when you find no more than a few pennies in your bank account can cause a lot of panic. Knowing how long you have to wait until payday to get the groceries, pay the rent and cover the bills is not a great feeling. In situations like these, turning to family could work, but the more conventional route involved taking out a payday loan.
Covering expenses like emergency repairs, delayed wages and unexpected bills, these short-term loans were (and still are) pretty popular. Until 2015, the market for these loans was highly competitive, but new laws introduced in 2015 to tighten up the way in which providers do business has changed the face of this part of the financial industry.
Since the introduction of those laws in the UK, the way in which payday loans and other forms of “alternative finance” work has changed a little. Interest rates have, in the main, become far more reasonable. Also, charges for late payment and unexpected interest rate hikes are far less commonplace, whilst the traditional 30-day repayment window is being phased out.
More short-term loan providers are marketing their products and services to specific groups of people. Smart-Pig, for example, provide summer loans to students when they’re not at university. Others are looking at stretching to three-month loans, with some of them focusing their energies on year-long loans.
The extra flexibility and timescales offered for repaying loans suggest that the consumer is being favoured. Not having to worry about paying excessive amounts in interest will provide much-needed relief to families and individuals facing a great deal of financial stress.
Many payday and other short-term loan providers have cleaned up their act. Before 2015, payable interest of over 2,000% was quoted, whilst there were no limits on how much providers could charge for late payment. Since then, rates have noticeably fallen - a cap of 0.8% interest per day was brought in by UK authorities.
Short-term loans are being provided by more than just for-profit firms. Many local credit unions, which receive some support from local councils, have a more ethical approach, running as co-operatives. They make sure that customers aren’t paying more than they can afford in interest and aren’t run for the sole purpose of making profit.
It seems that payday loans as we know them are not quite as popular. However, there is still a market for short-term loans, only over a longer timescale.