The UK short term payday loan sector has been growing at a phenomenal rate in recent years. There are many new online providers that have helped to grow the market by creating a competitive environment where the interest rates (APRs) are being forced lower and have as a result attracted new customers to the sector.
The market is currently worth approximately Â£2.5bn and is estimated to grow to more than Â£7.5bn by 2014. This is the reason there have been many new entrants to the UK market, both British and American companies, both online and in the high street.
Reasons for the Market Expansion
The past few years have been very difficult for low income families due to the economic downturn. The increases in cost of all essentials like food, energy and fuel has taken a big chunk out of peopleâs pay and has caused some to resort to short term borrowing to make ends meet until the next payday in the event of any financial emergency. Adding this to the usual users of short term payday loans and others who would usually use the mainstream instalment unsecured loans from the major banks, there has been a big increase in the demand for this type of product.
There are now many websites that provide access to the easy and fast short term payday loan market to all sorts of consumers; people with poor credit history to those who use the fast service instead of their credit card or overdraft facility who have a good to excellent credit record.
The Pressure on the Interest Rates (APRs)
The competition has forced many of the established players of short term payday loans to lower their interest rates (APRs) to attract the best customers, as some of them do perform a credit check, thus being able to offer lower rates than those providers that donât carry out a credit check.
Some of the best and lowest interest rates available are as low as 150% APR, which compared to some providers still charging more than 1500% is attracting many new credit worthy individuals to the best providers offering the lowest rates. This type of borrower is only interested in a short term loan without having to resort to using their credit card or bank account overdraft facility that may leave them with a long term debt issue, whereas they see the short term payday loan as a method of quick and responsible borrowing to cover a very short term shortfall in their finances that will be resolved by the next payday.
The Future of the Short Term Payday Loan
It is obvious that short term payday loans are here to stay and some of the providers have taken a significant share of the mainstream credit card, overdraft and unsecured personal loan market in the past few years. It is true that some unscrupulous payday lenders have taken advantage of the demand for this type of borrowing and have penalised some very vulnerable people who have not been able to repay their loans in time. However, the majority of the lenders have noticed the demand and growth as a positive factor and have started to target some of the mainstream market with competitive products that are attractive to the right type of customer, who tend to borrow a short term payday loan with the lowest APR possible more than 3 times a year.
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