You have probably heard lots about payday loans in the past decade. It is during this time that this form of borrowing has become particularly popular. As an industry, it is worth somewhere between £2-4 billion, and it doesn’t look like it is slowing down anytime soon. Payday loans are mainly obtained online, but there are some instore payday loans. But how did this kind of loan ever start out, and how did it get to where it is today? In 2004, the industry was only worth £100 million. Surely, something must have changed to make payday loans that much more popular. To look into that, we will first need to have a brief investigation of the origins of the payday loan.
A Short History of Payday Loans
According to a report in 2005 by Flannery and Samolyk, the payday lending industry originated in an early form in 1980’s America. For many, it offered a way out of the loan shark route of borrowing money. It was not too long before it also spread to the UK, where it quickly took hold. Today, payday lending is a bustling industry with plenty of customers. Part of the reason behind its very sudden growth rates is that there is now such variety in these loans. One of the main things to happen to the industry was the emergence of online payday lenders. Thanks to this, more and more people are taking out payday loans than ever before. In 2012, an estimated 8.2 million loans were taken out in this way. It is evident that this form of borrowing is not going away anytime soon.
In total, there are 240 payday lenders currently operating in the market. The vast majority of these – some 80% – are online vendors. But what are the fundamental differences between the online and the instore payday loans lenders? The fact is, most borrowers go online for their payday loans. But is this just a matter of convenience, or is there something else at play? To answer that question, we are going to have a look at each of the types of payday borrowing in turn.
Online Payday LoansAdvantages
First, let’s take a look at the state of online payday lending. For the majority of people in need of this kind of borrowing, they go online for it. The main reason for this is that it is easier and faster to go online to get a loan. For many, this is the primary advantage of using an online payday lender. Fortunately for those using these services, almost every aspect of the process is fast, not just the initial query. Some of the most popular services offer a bank transfer time of under twenty minutes. It is easy to see why this might be a particularly popular form of borrowing. If you are in need of some money extremely quickly, then going online might be the best way to do it.
But the speed of the process is not the only reason that most payday borrowers go online. If you work it out right, these loans might even save you money. If you are using payday loans to pay for bills in the short term, you might be avoiding extra charges and fees that would come from paying your bills late, or from unauthorised overdraft. As long as those fees are less than the cost of borrowing, this can be a sensible financial decision. Of course, it depends on each situation, and each individual needs to assess their standing first.
When trying to secure a loan online, there is a real bonus to the fact that you do not need to go anywhere. This is not just a matter of making things easier, however. For those who are in something of a rut financially, not having to shell out for transport can be life-saving. In this way, being able to get a loan online could even mean that they can get through the month. Ultimately, the process of getting a payday loan online is relatively hassle-free, and there is not too much to it. If someone is in desperate need of cash fast, then this is often the best way to go.Disadvantages
Useful as these loans can be, that doesn’t mean that there is no downside. Payday borrowing is always a risky affair, and it should only ever be done with caution. If you have not seriously thought it through, then don’t do it. There are also some specific disadvantages to borrowing through an online payday lender, which we will go through now.
When you are borrowing in this way, the interest rates might not always be crystal clear. It goes without saying that you want to pay careful attention to these rates. Ultimately, these are what tell you how much you will be paying. The interest rates for payday loans are always high, as this is how they make their money. However, when borrowing online, often the interest rates are hidden particularly well. When this is the case, it means that you can’t be sure of what you are actually borrowing. If you find that you don’t know what the interest rate is upfront, you should make an effort to find out as quickly as possible. Otherwise, you might suffer as a result later on.
Borrowers should bear in mind that, if they do not have a regular paycheck, they will not get the loan approved. This is something which marks a major difference between the online and instore payday loans. For online lenders, you need to be able to prove that you have a steady stream of income in order to get the loan approved. Otherwise, you might find it difficult to have it approved. However, in a shopfront lender, the rules are slightly different.
Another main disadvantage of borrowing in this way is that the lure of the Internet can make something seem a little unreal. This effect can lead to all sorts of irrational and destructive behaviour. One example of this type of behaviour is that you might end up borrowing more from a payday lender than you actually need to. The way the websites are set out often draw you in to borrow more and more. Of course, this is far from ideal. If you are keen to minimise your borrowing, it might be best to go to instore payday loans providers instead.
Instore Payday Loans
Speaking of shopfront lenders, they also have some specific advantages which are worth bearing in mind. For example, it is much less likely that a borrower will find themselves over-borrowing with instore payday loans lenders. This is due to the nature of the setup. It is also often better to be speaking with a real person, rather than doing it through a website. A borrower might find that taking out a payday loan this way feels a lot more secure. And ultimately, security is what you should be going for here. No matter how much you need to borrow, you want to be sure of the loan itself. You need to know for certain that you will be able to pay it all back, and that the rates are fair. It is for this reason that it seems clear that shopfront lenders are the way to go. While borrowing online certainly has its advantages, the other option does appear to be better overall. When borrowing, look to the high street first.