Government regulation and technology in the short-term lending services emerged in the late 1980s in the United States. To date, payday lenders as a type of activity functions differently throughout the country:
- in 15 states, it is completely prohibited by law, in 9, there are strict restrictions on the level of the interest rate (it ranges from 5% to 11% annually, and the loan amount cannot exceed 30% of the amount of earnings per month).
- in 27 states, laws are not so strict: payday lenders can issue a maximum loan of $300-$500 for a period of no more than 6 months, while the interest cannot exceed 45% per annum.
- there are no restrictions in other states. The average amount of payday loans is $375. At the same time, the number of people with payday loans has increased 3 times against the background of the crisis. The US National Consumer Protection Center called on Congress to set a cap on interest rates across the country, but was unsuccessful.
The leadership of individual states has taken measures to reduce the marginal payday loan rate to 36% and below, for example, Nebraska residents voted for such an initiative. Before that, the average rate on short-term small loans in the state was 404%. The largest interest rates are in the state of Texas, which average 664% annually. This is almost 40 times more interest on credit cards (about 16%).
The use of digital solutions and mobile applications for issuing payday loans is growing, and representatives of the millennial generation are most actively using them.
Storefront and online lenders – pros and cons
It would seem that what is there to think about – the online lending services should be convenient for everyone who needs trips to the office at all? But despite this, the storefront format and borrowers who prefer this method of taking out a loan are still preserved.
Storefront lenders – available options
- The time spent is several times higher in the offline format.
- When applying for a loan in the office, specialists pay attention to the behavior of a potential borrower, which may affect the approval / non-approval of the loan.
- Territorial limits – it is not possible to find payday lenders in all even small locations.
- Time frame – offices work mainly on weekdays and only until the evening (i.e. the possibility of receiving money around the clock, as in the case of online companies, is excluded).
- There is no need to enter card details and be afraid of fraudulent actions with it.
- The opportunity to see with your own eyes with whom a financial transaction will be concluded.
- You can use it even in the absence of the Internet and the necessary gadgets.
- The opportunity to get comprehensive answers to your questions from a specialist.
- When receiving a loan at the office, you will always need only an ID.
Getting a loan without leaving home – online lenders
- The risk of unfair use of the data of the specified card or account.
- The need to provide more documents in some MFIs (any second document).
- Often a small amount of the first loan and a short period for its repayment.
- You can’t see the specialists who serve you.
- The possibility of issuing a payday loan around the clock.
- Minimal time spent (in some online lending services, receiving money within several minutes after submitting an application).
- Free loans to new customers and profitable loyalty programs for “regulars”.
- A very large selection of organizations with different terms that can be selected individually.
- It is impossible to get a fake bill, as the money is transferred online.
- There is no risk of refusal of a loan because of behavior and appearance.
In general, each format has approximately the same list of pros and cons. Here it is a matter of everyone’s choice, which depends on the individual situation. Perhaps someone can continue the list offered?
The advice of a banking expert is to choose only verified licensed organizations that have a high level of data security, and everything will be fine.