Payday Loans Direct Lender

There have been several discussions regarding the origin of payday loans, the exponential growth that these payday loans have experienced and at the same time, it is important to consider how payday lending has become a problem. There have been numerous studies which have suggested right from the start, the need to impose strict regulations on this industry and the belief of several critics has been justified by the problems that borrowers have increasingly been facing from the practices adopted by this industry. When we talk about the problems of payday lending and the origins of the conflict, it is important to consider how both borrowers and lenders have played an equal role in the problem of payday lending. The role of the payday loan direct lender is to maintain a strict level of transparency in their transactions and play the combined role of an advisor and a lender.

How payday lending has become a problem:

In the early 1990’s, at the behest of industry experts and advocates, a special type of short term loan option was framed which was given the belief that it would positively affect the borrower’s ability to manage their cash flow. Lawmakers carved out a special scheme independent of the other restrictions that applied to other types of credit, in a sense they were given a free market to function. This was a way of opening up the economy, according to various economists. The problems mainly existed during the 20^th century when there was a desperate need to find solutions to this existing problem of payday lending. The solution to the chronic problem of indebtedness was the equal installment loan option which was to be paid over a period of time, with each installment reducing the principal amount.

On the contrary, payday loans thrived on the interest they would receive from these loans as it was to be repaid at the end of the week and the borrowers invariably ended up renewing the loan amount. In financial terms, short maturities are preferred by the payday loan direct lender since these will be harder to repay, and renewal and the re-financing charges will take up most of the principal amount.

This can be justified with one of the most interesting examples to come at this particular point. There were a group of unlicensed lenders who took up the responsibility to form a group and allow loans at higher interest rates than 6 to 8 per cent that state laws restrictions limit extended upto, and this modified legislation was passed in 34 states within the US to end unlicensed lending and introduce the formation of installment loans.

The effort of this particular legislation was to make small credit affordable to the average citizen in response to the pervasiveness of unlicensed lenders who were dealing with unaffordable loans which was the case with as many one in 5 workers. There were foundations that decided on much more affordable rates of interest such as 42 per cent or 3.5 per cent every month for an amount of 300 pounds or less. There were several states that permitted lower interest rates and still saw a successful market for credit.

The change in Payday Lending:

In 2010, several industry experts along with regulatory bodies confirmed that that the payday lending industry has led to unintended and harmful consequences. There was a drastic change in the payday loan laws requiring the remainder of the players in the industry to shift to practices that allowed the payday loans direct lender to allow the borrowers to pay off the loan amount in equal installments over a period of at least 6 months and completely do away with the payday form of lending. This result was achieved through simple steps that were followed through an in-depth research on the effects of this industry on borrowers:

·         Analyzing the situation before and after the change in laws. The borrower repaying pattern was observed and published before everyone to see to show the positive effects of the change in laws.

·         Surveys were done with borrowers who were regular payday loan borrowers and asking them how the change in payday loans had had an effect on the borrower’s income.

·         It was also important to understand the other side’s perspective including state senators, district representatives, payday loan direct lender to gauge the response of this class of people towards the new changes in law and how it is affecting the borrower.

There was one great observation that was made by a certain state official which summed up the problem of payday loans in three-four lines.

“The interest of the business and the interest of the individual are moving in opposite directions (under the old payday loan law). We wanted one that bent those curves back a little bit by saying the businesses do better when the person actually has a route out of debt as opposed to a route deeper in debt”

Although the new loans do promise a long lasting change in the positive direction, there are a certain number of complications that come with these changes. One is the Annual Percentage Rate which has been decided at an amount of 200 per cent which could result in almost 290 pounds as finance charges if you take out a loan amount of 500 pounds if they kept the loan going for a period of 6 months. Someone who makes biweekly payments can restrict that amount to equal installments of 61 pounds each for the same loan amount.

What is needed to understand from this scenario is whether these laws will make a significant impact on the borrower’s ability to repay and whether it will truly serve as a route out of debt. At the same time, there needs to be a simultaneous degree of awareness in other forms of credit, such as credit unions, pawn shops, and other installment loans which could create a lighter impact on one’s pocket. This can only happen when the borrower is informed and make a choice which results in his overall well-being.