If you were… well, almost anywhere during the late 2000s and early 2010s, the chances are that you will have known what payday loans were. Even more than that, you might have had a task on your hands trying to escape the aggressive and widespread advertising for them.
Over the past decade, though, payday loans seem to have almost completely disappeared from view. That’s not an accident; stringent regulation has been imposed on payday loan companies in recent years, which has had a greatly positive effect in terms of protecting borrowers.
But what else might you not know about the history of payday loans? Below, we’ve laid out the story of these short term loans, and what their present status is.
Although it might have seemed to many people during the earlier 21st century that payday loans were more-or-less invented then, they really first came about in the early 1980s in America. By the late 1980s, they had made their way over to the UK, although back then, the typical person seeking such credit would have looked to their local pawnshop, rather than online.
The 2000s, however, seems to have been when payday loans reached their height… but not necessarily in a good way, as far as borrowers were concerned. They were strongly promoted through the likes of daytime TV advertising and billboards, and by 2013, the payday loan market was worth £2.5 billion.
It was a time that saw a ten-fold rise in the numbers of people turning to Citizens Advice for help in relation to payday loans. Unsurprisingly, payday loans, with their often terrifyingly high interest rates, acquired a less-than-brilliant reputation as aggressive and unscrupulous lenders boomed, and political pressure grew to impose strict regulation on the market.
Since 2014, this is exactly what has happened, when the Financial Conduct Authority (FCA) gained the power to set and enforce standards in the sector. Notable changes included the imposition of an interest rate cap of 0.8% per day, and a maximum repayment of 100% of the loan principal. This meant that those borrowing £100, for example, would never be required to repay more than £200.
With the aforementioned regulatory changes effectively forcing the most predatory payday loan providers out of the market, payday loans are no longer as notorious as they once were. Such loans do still exist, however, and as we have previously written about here at CashCompare, they can still be horrendously expensive – and therefore a very risky option for many people.
Thankfully, one of the big changes in the market since the “bad old days”, is the fact that people who find themselves in a tight financial spot do now tend to have many more options than payday loans.
CashCompare, for instance, is a credit broker that helps to give would-be borrowers access to unsecured short term loans that are repayable over a longer period than payday loans – up to 12 months, or even several years, as opposed to the one-month repayment term that payday loans became known for.
This, in turn, might help to make a short-term loan obtained through us a more attractive option for a variety of circumstances. But of course, there is also no such thing as a risk-free loan. So, we would always urge you to seek financial advice and to explore your other options if you require access to funds, such as extending a bank overdraft or borrowing from friends and family.
Don’t forget that you can fill in and submit our quote request form, with no obligation to commit to any offer you are presented with. This could help you establish what your options are if you are presently comparing payday loans to other short-term loans and alternative solutions.
CashCompare is a credit broker and is authorised and regulated by the Financial Conduct Authority. We do not provide loans directly.
"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.