A simple search on Google will showcase a large number of bad credit loan lenders. You simply fill out a form and enter your bank account number and the funds are automatically transferred to your checking. It’s quite simple and easy to use, but is this contributing the payday loan debt spiral?
Study: Food and ‘No Money’ Reasons for Borrowing
A new study of 112 Australian consumers outlined the top 10 reasons for taking money from a payday loan lender. The top four reasons for borrowing money isn’t necessarily shocking: food, bills, rent and “no money.” Consumers turn to payday lenders because there are no other alternatives for them.
More than half of the research participants reported to taking out at least 10 loans in the last two years. Three-quarters of the so-called “heavy borrowers” had applied to more than 20 loans in the same time frame.
Survey authors say disability support pensioners were double that of the unemployed to be heavy borrowers of bad credit loans.
Overall, nearly one-quarter (23 percent) had “spiraling loans.” This means they refinanced a paid-out loan in order to begin a new loan. Close to half (44 percent) of payday loan users were in “cycling loans.” This means they took out a new loan as soon as the old loan was paid back.
Despite the usual problems associated with payday loans, the survey participants conceded that these establishments are a “necessary evil” to staying afloat.
Poverty Researcher Points to Zero Access to CreditOne poverty researcher purports that consumers using their mobile devices for “a quick injection of cash” is leading to a great number of online lenders, and thus creating a greater number of consumers in debt.
Greg Marston, poverty research professor at QUT’s School of Social Work and Human Services in Australia, opined that the primary business model for bad credit loan lenders is to “repeat loans to low-income customers.”
Marston notes that online lending is definitely payday lending, a short-term monetary remedy to cover rent, utility bill or an unforeseen emergency. These funds are meant to be paid back to the lender on the next payday. This isn’t the case, posits Marston, something many can attest to.
“They make little money on one-off loans that are paid off by the due date but have devised ways to trap vulnerable people into a cycle of debt that can be impossible to get out of, despite recent national regulation of payday lenders,” said Marston.
“The easy availability of quick-fix, no-security loans from online lenders could draw in young people and, like online gambling, become a debt trap.”
He believes payday lending is an element of the “poverty industry,” a niche whereby companies market products and services to the impecunious aspect of the marketplace with a higher price.
The professor likened the bad credit loan industry as similar to the fast food outlets.
“The poor pay more for everything and they pay more for credit.”
A greater access to credit could be the solution since just seven percent of respondents had a credit card, compared to 87 percent of the general population.