Where Did Payday Loans Come From
Payday loans are used as short term borrowing option by people of United Kingdom. Small amount of cash can be obtained in the form of these loans. Applying these loans is easy and simple. Go through this article and get to know about the backdrop behind the emergence of these loans.
A look back at the history of payday loans-
In the early 1980s, payday loans originated in the United States. So, these loans were not a new thing that people are experiencing. These loans are basically taken out by workers who look forward to use extra cash obtained in managing expenses until they receive their pay checks.
2006 is a remarkable year when payday loans came into existence in the United Kingdom. Large amount of cash was given as loans that year. At the beginning, very few loan lenders were interested in lending as these loans are totally a new concept. But the year 2007-2008 saw the onset of global financial crisis which led to the increased demand of these loans among the Britons as it became almost impossible to fetch cash help from mainstream financial institutions in the UK. Within the period of 2006 to 2009 there was incredible increase in number of people using these loans.
Reason behind popularity of payday loans in UK-
The ongoing recession and resulting cash crunch followed by successive welfare reform and changes in employment practices in a way forced people of UK to turn towards payday loans.
Also, convenience offered by these loans cannot be denied. Suitable cash is accessible quickly to meet any unforeseen expense that cropped up ahead of payday.
Strict lending criteria restricted people of UK from borrowing from conventional lenders. This resulted in people getting more and more influenced by the benefits of payday loans.
Moreover, that was the era which witnessed technological advancement. Use of internet is growing faster and faster. The best thing happening then was that people could sit at home and apply for loans simply by making few clicks on the mouse. Borrowers need not have to face any exertion while applying for these loans at the hour of crisis.
Eligibility criteria set for payday loans were easy to fulfill. Other than age, job, residency and bank account the borrower needs to be able to submit a post dated check in favor of these loans. No costly assets like car or home is required for these loans.
Although credit checks are done compulsorily but this cannot stop borrowers from getting loan assistance with low credit scores, bad credit scores or no credit scores. In short, everyone is given equal opportunity.
Criticism faced by these short term loan alternative-
When the popularity of payday loans was at its peak, complaints were coming against these loans. To make things worse, stories about abuses of the system got highlighted at the news headlines. Soon, borrowers started complaining about high rate of interest, high late fees etc. Few payday loans lending companies were found responsible for doubtful business practices. Those companies were found practicing debt chasing tactics and encouraging borrowers to take more and more loans. This caused the borrowers getting trapped in spiral of debts. Moreover, reports like threatening the defaulters were also in news.
Despite all the criticism going on in and around payday loans, payday loan industry reaches its peak during the year 2012-13. It almost doubled up in size. But in 2014 many of the payday loan firm had been fined as they were following illegal practices.
Regulations brought in action by FCA-
In April 2014, major changes were made in UK law governing payday loans. It was then the whole scenario got changed. With the intervention of FCA, restrictions were put on payday loan lenders on the number of times they can roll a loan over. Collection practices followed by payday loan companies were changed. The whole idea was to make sure that people should borrow money if he or she can afford loans and after getting acquainted with the risks of borrowing and implications of non payments.
The FCA set a price on fees and charges imposed by the lender. This was done in order to ensure that no borrower is overpaying for what he or she had borrowed.
Regulations made by FCA were done after in-depth analysis of the lending market and for effective control of any mistreatments by payday loans lenders.