As the recession continues, so does a Payday Loans boom

Everywhere you go in the UK during the recession, you never seem to be too far away from an advert for payday loans. These offers for quick and easy cash permeate our high streets.

A payday loan is a usually a small amount of credit used to tide you over till your next wage packet. Competition in this sector has rocketed in the past two years, according to a report on Consumer Credit by the OFT (Office of Fair Trading) into the £35 billion credit market.

But the reasons for this apparent boom are not just because consumers need readily available cash, it’s because the mainstream lenders are short of access to funds too. The global financial crisis led to the lack of the availability of wholesale funding for banks and specialist lenders. In turn these specialist lenders moved away from offering large loans to offering much smaller, short term loans. Payday loans providers typically offer less than £1,000.

These Payday loans lenders are much less dependent on the wholesale funding that was previously provided to banks, due to the small loan amounts involved and the quicker returns available on short term loans.

Much of the increased competition that is apparent in the current market has not come from the new entrants, but from established lenders, including pawnbrokers expanding into the payday loans market, along with brokers or ‘introducers’.

Another area that still has room for expansion are online payday loans, as the regulations that allowed such transactions was only introduced in 2005.

The OFT report also explains that the quick and easy access to money was the main reason why people choose particular credit offers, even though they know that this may be a comparatively expensive way to borrow money. Up to a third of users of certain higher cost credit products say they will continue to use them.

One of the biggest risks with payday loans, and the reason why many end up in a debt spiral, is because their funds are not available to repay the loan, particularly at times such as Christmas, when people are always short of money.

For at least as long as the credit squeeze continues, Payday loans look as though they are here to stay.

But is there a better alternative?

Logbook loans are no credit check loans, where you can receive the cash you need within 24 hours that offer you instant loans online.