There’s no doubt that the payday loans UK industry is changing. With the price cap that was introduced on January 2nd, the new affordability checks that came into play last year and new measures still to come from the Competition and Markets Authority it’s no surprise that a very significant overhaul of the sector is under way. While initially there was a sense of panic and confusion about what kind of a sector this would result in – with figures being released indicating that enormous swathes of the sector would fall by the wayside as a result – many are now recognising that these changes could give us a better regulated market that fulfills the original aims of short term lending, which is offering affordable finance that is flexible and fast.
The Product is Changing and Evolving
One of the major ways in which the new landscape has influenced the structure of payday loans is with respect to the length of the loans on offer. Whereas the traditional payday loan was repayable on the next payday (i.e. within a month), now lenders are switching to longer products, such as six month installment loans. This is partly in recognition of the fact that these types of loans are where consumer demand really lies and also to take into account the new rules on rolling over loans. Whereas previously a loan that was borrowed for a month but could not be repaid at the end of that time could be indefinitely ‘rolled over’ (i.e. the repayment date pushed back another month), this has now been limited to two rollovers. This caps the rollover fees that consumers have to pay and is encouraging a more realistic approach to debt repayment.
As a result we are now seeing easier repayment plans that allow for a longer repayment period, taking the pressure off individuals who are trying to clear a debt. The big advantage of this is that it can help people avoid the cycle of debt that many have fallen into, which begins with a payday loan being borrowed and continues with repayment of that loan, which leaves the consumer too short of funds to meet daily and monthly costs and so the loan is continuously reborrowed. With a longer term installment loan a consumer can manage repayments so that they work with other budgetary requirements and gradually clear the debt. It’s a much healthier way of repaying borrowed money.
One of the consequences of the new payday loans landscape has been the changes that are taking place within the market as a whole. Over the past year we have begun to see many of the smaller lenders disappear and there are indications that the predictions in the media of high street lenders disappearing altogether might well come true. While this isn’t great news for those businesses, it is good news for consumers as the market players who are left will be larger, better established, more compliant and better able to incorporate the recent changes to make borrowing better for everyone.