Curated by Money Talks – a UK money blog. Visit us at Glomaker.co.uk
It’s no secret that the financial crisis of 2008 was the worst since the Great Depression of the 1930’s – costly bank bailouts and a stalled economy resulted in tough austerity measures being introduced by the UK Government to reign in the country’s near 1 trillion debt (it now stands at 1.25 trillion).
The knock-on effect of long-term pay freezes, benefit cutbacks, and spiralling living costs have affected many household budgets, with the hardest hit people turning to high-interest short-term loans just to make ends meet during the month.
In response to this growing trend, online micro-lenders, spring up almost daily – with sparkly websites, cute names and the promise of quick and convenient finance. However, despite being the only available option for many, this sector of the finance industry is truly unloved (more so than the banks themselves), but without the availability of this type of product, it’s difficult to see how many families would get by.
Just 10 years ago, the landscape was very different. Back then, if you wanted a loan, you would have had to make an appointment to see your bank manager – arrive on time, wearing your Sunday best and with a well rehearsed defence case. If you were lucky enough to have a steady job and exemplary credit you stood a reasonable chance of being offered a loan, usually with a repayment term over 3 to 10 years – any evidence of poor money management would result in a definite ‘no’.
Short-term cash loans were available but not from the banks. Instead these had to be arranged in full view of the world and his wife, via outlets on the high street, strategically placed between a charity shop and a bookies. Securing same day cash often meant selling your possessions, or at least pawning them as security for your loan. Banks offered alternatives in the form of a credit card or overdraft, but as with their loans, a good credit standing was almost always needed.
Fast forward to 2014. The short-term credit industry is now worth an annual 1.2 billion, with some very significant players such as Wonga and Quick Quid. Aside from very high interest rates and a wave of controversy, these companies do manage to bring something positive to the party. No, not sponsorship deals – technology!
Technology has undoubtedly played a large part in the vigorous growth of the sector (as did the financial crisis). Thanks to developments in mobile and Internet technology, lenders can connect with all relevant parties real-time and provide an almost instant lending decision.
In our 21st century world, we want convenience – no humping our items through the middle of town or taking time off work to attend an appointment. We want to conduct our business in the privacy of our own home, preferably sat in our pants, whilst subconsciously soaking up an EastEnders storyline and eating pizza. We want a fast decision and a quick payout too – not the stress of waiting, wondering and worrying for days on end.
This is what these moneylenders do best – they offer us quick and convenient solutions to our everyday cash-flow problems. Yes, it does cost more than some other financial products, however what many people don’t realise is that the cost to take out a Wonga loan for a number of days is undoubtedly cheaper than the unauthorised overdraft fees charged by most banks.
Just like Marmite, these short-term lenders are never going to be everyone’s cup of tea (or hot beef flavoured beverage) – to some they’re legalised loan sharks, to others they’re an important lifeline. Whichever side of the fence you sit on, I think you’ll agree, they have shaken up our antiquated banking sector – and for that alone, I applaud them wholeheartedly.