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One of the recent trends in the payday lending business was that it was growing rapidly and seemingly without any limits. However, some experts say that this is due to the changing nature of payday lenders who are stepping out of their normal boundaries.
The Consumer Lending Index includes the best performing companies and the best one is Enova. The next in the rating is Curo Group Holdings. Both grew by a substantial amount with the former demonstrating a respectable 64% growth.
One of the core reasons of their top performances is the growing popularity of short term credits that are high interest products that have slightly modified parameters such as length, structure, and size. This makes them less of payday loans and more like a standard long term bank credit but with an ultra-high interest rate.
Obviously, companies do want to diversify their product lines and offer their clients as many various offers as possible. This makes it easier for customers to pick something that suits their needs. For example, the list of available products from payday lenders showcases a wide assortment of financial products that target different audiences.
New products with increased length and size quickly gained enormous popularity amongst customers who prefer new offerings over short terms and much smaller loans that they had to choose before. Special new lines of credit from Enova are now competing with a diversified product line from Curo which incorporated money transferring and some gold trading.
The prevalence of installment credits is what makes it very interesting for many customers. Most payday loans are structured in such ways that borrowers have to bring back the whole sum in order to avoid problems. This was not convenient for some clients and most lenders had to restructure their approach. This was also due to the tightening grip of the government on this issue. With more and more legislations being aimed at payday lenders, they had to diversify and offer more flexible products.
The peak of the industry in 2012 was due to the massive amount of loans that were taken by people as payday loans. The total volume of contracts reached a whooping $9.2 billion in 2012. However, over the course of 4 years, there was a steady decline to a less frightening $6 billion. Despite the decline, most companies showed a good growth that was mostly due to the shift from regular loans to installment lending. From 2012 to 2016, the industry showed an increase from $4.3 billion to a much more convincing $6.5 billion.
At the moment, most companies have fewer payday loans. For example, the share of installment lending contracts in the overall balance of Curo was about 60%. This company collects less than 30% of its revenue in good old payday loans. This means that audiences also shift towards the installment scheme.
Be Careful with Debt
This is exciting news, but there are some pitfalls that many Americans simply refuse to notice and keep getting into financial holes that do not have a clear exit. The situation can be scary for some uninformed borrowers who make rather questionable financial decisions. Some experts call the new scheme “predatory” and “unforgiving”, but the reality, just as always, is that people often do not read between the lines and fall victims to companies that do try to squeeze out as much revenue as they can.
Payday loans and short term installment credits can be very useful to a large amount of citizens who need temporary financial aid. However, all potential borrowers must know about the specifics of the industry.
For example, Enova’s loans can have an APR of 450% annually. These are numbers from so-called subprime options. If you can get above this level, you may count on much less aggressive interest rates in the range from 34% to 179%. Note that most industry leaders offer loans with very high interests with percentages going up to triple digits. The same situation can be observed all across the industry.
There is a new legislation in development that will somewhat cripple many installment credit products. This will be a good move on behalf of the government. While many people simply cannot survive without payday loans, the regulation of the industry is still subpar and could use some improvement.
The CFPB wants to improve the environment and put some pressure on payday lenders in order to change the playing field and level it for customers. Most Americans do need protection from their own responsibility.
The Main Takeaway
Lenders with diversified products perform much better compared to lenders who offer only payday options. At first, the diversification was a smart move to avoid strict regulations, but new installment products gained so much popularity that modern payday lenders rely on them even more than on actual payday products.