2015 was good for the financially vulnerable, when the government capped payday loan APR maximums. Although many would argue that the cap was still set too high.
This reduced the ease of which needing a few extra quid can spiral into unmanageable debt. Although the threat remains. News articles for years have recognised the immorality of these quick cash payday lenders. Preying on those with money struggles, by putting them in a worsening situation. And still today, APRs are much higher than your typical personal loan or credit card.
So why then, do people still apply for these payday loans? Even with the knowledge that they could put themselves in a worse situation?
Those getting into payday loan situations, tends to be low income renters under 30. These people can’t afford their own homes. They are earning lower salaries than previous generations. Faced with a higher cost of living.
So, we find ourselves needing short term loans because our cash doesn’t stretch quite far enough. Not even enough to lead an acceptable lifestyle.
Nobody should go without food, electricity or a roof over their head.
There is a need to pay the mortgage, or more likely the rent. Maybe there are outstanding debts such as credit cards or personal loans. Bills must be paid, there may be an emergency that requires money we just don’t have right then.
The quickest and most accessible options are these microloans. With almost instant approvals, the money is soon in your account. Short term problem solved but with potentially damaging consequences.
These companies are enabling people to get themselves further into debt. People with a history of defaulting, financial problems, missed and late payments.High interest rates and charges for people that need money. Leading to even less money to put towards their original debts.
That doesn’t seem ethically or morally right. Except where peoples’ credit is so bad that they cannot get loans anywhere else. And then, payday lenders are, always have been, and always will be a necessity, in order that these unfortunate borrowers do not have to deal with unlicensed local villains with baseball bats, to put it as a very extreme example.
A traditional credit card may reject you for having bad credit. Or won’t give you the amount of credit you request. You’ll also have to wait for the approval, and then wait for the paperwork, card and pin. Not ideal if you need help now.
If you need money today, a new credit card isn’t a convenient option. Even if there is a 0% 18 month rate followed by a reasonable APR...
These aren’t causes, but symptoms of a more serious underlying issue. Poor personal financial management skills through a lack of education. Lack of access and understanding of safety nets. Resulting in turning to short term fixes to long term problems.
Payday loans paper over financial cracks and at least they hold things together. They don’t solve long term problems, but those in need are often unable to rely on other areas for financial relief. There are free, confidential financial advice services that can help people in times of financial worry. But, they can be slow and they exist in the shadow of the bigger, easier and possibly less embarrassing money-making payday loan companies.
Payday loans are taken out of short term necessity, by those who need financial help very quickly. What we need is better and greater financial education at an early stage, so that there is longer-term planning and less short-term emergency necessity.
I am a serial entrepreneur who has spent much of his life in the financial sector and in doing so I have become very knowledgeable about the sector. This experience has enabled me to become the founder of the Campaign for Fair Finance™ and my current venture, Fairmoney.com.
In my career I have started several lending companies and indeed I was instrumental in founding the non-prime motor finance sector, allowing people to afford to purchase a car who might otherwise been unable to do so.
My experience within the finance, and more particularly lending space, has afforded me the opportunity to advise the Bank of England, The Law Commission and the Treasury on various aspects of asset finance policy. Indeed I am currently assisting the regulators and some leading parliamentary figures to reform the UK credit and lending industries to create a fairer and more transparent environment.
At the same time, I also advise several charities and social enterprises on their financial and media strategies and help a number of exciting businesses across a spectrum of sectors and industries.
My experience within this industry sector has allowed me to become a media pundit and commentator on many consumer and particularly consumer finance issues and to become an ethical advisor to the emerging crypto currency and blockchain markets.