The high-cost short-term loans (HCST) is an industry that has been the source of much criticism for many years throughout the UK. HCST loans, also known as ‘payday lending’, are characterised by their astronomical interest rates (often being above 1,000% APR), and are typically lent to the more vulnerable members of society.
With 3 million high cost loans funded each year, customers are often reliant on the injection of funds to see them through the rest of the month and they regularly have adverse credit histories. According to Payday Bad Credit, borrowers can often find themselves trapped in a vicious cycle of debt and unable to stay on top financially.
Although previous attempts have been made to better manage these types of loans, such as restricting the amount of roll over loans and putting caps on how much money borrowers can apply for; as shown in the Financial Conduct Authority’s (FCA) latest study into HCST loans, a shocking two thirds of borrowers were put into debt as a result.
HCST loans have therefore become a significant issue, not only for the wellbeing for some of the most vulnerable members of society, but also for the country’s economy. In response to this, the UK’s Fintech industry has been innovating to help reduce the amount of HCST loans by offering fairer, more manageable alternatives.
Fintech companies such as Wagestream allow employees to take out a percentage of the wages they have already earnt before payday. Whether they wish to take out the full amount or a small percentage of this, Wagestream will only charge its clients a flat £1.75 fee for this service. This particular Fintech company have already managed to raise £15 million in investment funding this year.
Another Fintech company that is seeking to replace HCST loans is Neyber. This startup has created software that can help employers to offer their workers more flexible credit facilities at much lower rates than the standard payday loan. Neyber offers the following three products: financial education, affordable loans and savings/investments. The company’s main goal is to give employers the right know-how so that they can better support their employees, and help them to learn how to better ensure their financial wellbeing.
Co-founder of Neyber has claimed that the startup “takes this simply idea of finance nourishing within a community and brings it band up to date with smart technology that allows employees to take control of their finances.”
Elsewhere, existing lenders in the high cost space are now required to shift away from the traditional 14 to 30-day payday loan product to offer a more flexible instalment loan over 3 to 24 months. Whilst this may take years to see the full impact, the increased regulation and influence of Fintech companies can offer a viable solution and alternative to high cost loans.
Leave a Comment