Ever since Payday Loan introduction in the UK market in the 1990s, to its striking growth post-2008, payday lending is a subject of high debate and criticism by financial experts in the UK. From being a mere £100 million industry on its inception in the pre-2009 era to a rapidly burgeoning industry of over £2 billion in 2017, the future of Payday Loans in the UK continues to escalate.
The major criticism associated with Payday Loans was the fact that there was no legal restriction over the limit of annual interest rates. The typical annual percentage rate or APR % could touch 1,000% or more. The case against payday primarily highlights that these astounding APR% could lead to a buyer’s trap for the borrower who is already struggling with poor financial health.
However, it is worth noting here, that post restriction by the FCA on the limit of interest rate in the UK, which was capped at £25 per £100 in a month, the growth of payday loans were somewhat restricted. Till date, payday loans have peaked growth within a period from 2008 to 2012 and have reduced since then. But at the same time, the opponents of these quick loans termed capping of £24 on £100 (if a borrower borrows for 30 days) per month as a marketing gimmick to legalise loan sharking by registered lenders.
Most of the online payday lenders in the UK have reported the customers borrowed loans multiple times in a year. Many households use payday loans as a viable source of gap fill before the next payday. They tout it is as the convenient channel to borrow as a poor credit borrower.
Owing to severe banking regulations, and need for a high credit score, and low growth of wages, payday loans seem to be a preferred mechanism over short-term instalment loans in the UK.
Many numbers go in favour of payday loans. According to the Competition Market Authority’s (CMA), the UK households borrow market investigation on payday lending in the UK, on an average £260 as a payday loan in the reported year. Most loans raised were less than £1000 in value. It is interesting to know here that the average duration or term of loans was just over 21 days or three weeks in the UK. It is evident here that most of the borrowers were ready to meet their obligations well within the deadline as a lump sum instalment.
Looking at CMA market investigation on payday loans, we can enlist following customer behaviour for the industry:
- Most borrowers opted for multiple payday loans throughout the year, wherein average was 6 loans in a year, from 2-3 lenders.
- Online loan partners were on high preference for borrowers seeking payday loans. Call it, stricter lending regulations or unavailability of loans to the borrower, less than 30% chose high street lenders to meet their financial requirements. While 83% of borrowers chose online payday loans,12% of the users used both at some point in time.
- It is worthwhile to know here that most payday loan customers are those with financial problems or bad credit history. As much as 52% of payday loan customers had some debt problems in the past, and they used them as an alternative to poor credit loans in the UK.
Thus, a major percentage of payday borrowers in the UK are already indebted or are the ones with a high appetite for credit. Online loan providers who are filling in the demand with ‘legalised’ supply are categorically winning the market share! Read this article to know how to protect your credit score and how to borrow safely.
To apply for Payday Loans in the UK, click here.