The UK payday loan industry is going through rough times in the last 12 months. The main focus for lenders has been making sure the product is compliant following new regulation and the industry as a whole has been at a standstill since the beginning of this year.
But are we seeing any signs of recovery yet?
The answer to this question is a conservative and cautious yes. In our opinion we have already hit rock bottom and things can only improve from this point. Lenders are changing and adapting their products to ensure they are treating customers fairly and providing a sustainable product from a customer point of view – a product that is more flexible and suitable to customer needs, lower fees and lower overall cost of borrowing.
The payday loan product is adapting
Most of the payday lenders have switch to a 3-6 month repayment plan for short term loans, reduced the APR to half what they used to be in the past and allow for more communication with the customer to ensure the product is appropriate for their needs. More repayment options, flexible terms and reduced fees – this in turn contributes to a more affordable product to the customer.
Is recovery a sure thing?
A slow recovery is to be expected and the lenders that have remained in the market should be able to grow, sometimes taking market share of lenders who have exited the market. Demand for short term loans is still strong. (see google trends)
Are we going to see payday loans rise to the same level as before?
Most probably not. Gone are the days of repeat borrowing, rollovers, costly default charges and borrowing from one company to cover other payday loan debts. Lenders are required to demonstrate they perform adequate affordability checks in order to make sure this does not happen again.
What about payday loan brokers?
Fee charging brokers are a thing of the past. There may be some still clinging to what they can get away with but we think the FCA has managed to prevent bad practices from happening again in this sector. We think this provides an opportunity for non-charging brokers (like us) to slowly gain some market share and has placed competition on a level playing field.
The rise Payday Loan Comparison websites
Payday loans comparison websites have emerged as an alternative to payday loan brokers in the short term. Advertising aggressively using the online mediums and forcing lenders to compete aggressively for top positions. To succeed, these websites must rank lenders by those who pay them most and this is not necessarily the best customer outcome. The advantage of using comparison sites is that they are more transparent and they provide an easier way to compare lenders should customers be interested in making such a comparison.
The market is definitely changing and a major cleanup is in place… A slow recovery is expected in these new circumstances.