New research shows that young people are more likely to use payday loans than anyone else. The group conducting the study, Citizen’s Advice, estimated that this was because young people carry most of the debt burden in the UK and around the world.
They have to pay for student loans, new vehicles, start-up fees for businesses and other costs associated with getting one’s start in the world. Many of them manage to get out of debt or at least alleviate their debt through a number of different resources. One of those is payday loans, which enable them to find a short-term solution to the financial burden.
According to the same research, young people are also more likely to use payday loans than bank loans. This is likely due to the tighter restrictions placed on loan eligibility when it comes to bank loans. Banks often want to see some evidence that the people borrowing money are responsible and that they have a history of paying their debts.
Most young people are not experienced enough to be able to do that and may have a poor or non-existent credit history from which to draw. Banks are much less likely to take risks with borrowers, and thus tend to turn down applicants far more often than payday loan companies do. Because of the system on which payday loans operate, they are able to accept more people and offer their loans to a wider range of applicants.
Most applicants are approved quickly for payday loans, making it a process that appeals to the modern youth who is used to instant gratification. Waiting through the bank’s long loan process is not particularly appealing to them, which is why they often opt for payday loans instead. Young people are also likely aware that banks are more demanding in their eligibility requirements and may not even attempt to apply for such a loan. They may go directly to the payday loan company instead.
Research from the Financial Conduct Authority says that payday loans and other similar types of fast cash services are likely to be on the rise this year. They estimate a greater than 60% increase for the wider fast cash market this year alone. This likely comes down to changes in the payday loan policies due to FCA regulation. Their control over the industry has sparked wide change and has led to an overhaul of practices both in the way services and terms are set up and in the way the products and services are advertised.
Even after these changes have been enacted, more may be on the way. The payday loan industry is adapting, but not all companies have managed to make it through the changes intact. The decrease in competition has forced those who remain to offer better incentives to those who apply for their loans, making for a more competitive market and one that appeals to young people even more than it has in the past.