Is this the end of the fashion for payday loans or just a change in the needs of borrowers?
Preliminary data show that in 2017, approximately 1.5 million Poles benefited from payday loans. This is a lot, but a similar number of clients of loan companies was recorded in the previous year (1.56 million according to the report of the Conference of Financial Enterprises). The weaker growth dynamics of the non-bank loans market have been talked about for many months, and its main reason is to be the improving financial situation of Polish families as a result of the 500 plus program. Does this mean that loan companies need to worry about their future? Not necessarily.
Polish families no longer needed?
For many years payday loans were seen as loans for desperates, people with such a bad financial situation that they were unable to use banking services. Before the loan market was regulated, payday loans were granted to almost everyone without examining their creditworthiness, which in turn led to pathological situations when horrendously expensive loans went to indebted people and compounded their financial problems. The truth is, however, that for many families the opportunity to borrow at least a few hundred USD in this way was sometimes the only salvation – thanks to payday loans, people with extremely low incomes could pay overdue bills, fill up deficiencies in the fridge, or buy winter shoes for children. With the introduction of the 500 plus program, this type of loan is no longer needed.
This is confirmed by the report published in August 2017 by the Credit Information Bureau on the impact of the 500+ program on the debt of Polish families. It stated that for 27% of the respondents, the benefits of the 500+ program helped to avoid getting in debt with loan companies, and around 30% of those already in debt with such companies and banks could finally pay off their arrears. Therefore, the data show that the 500 plus program has indeed improved the financial situation of the poorest families who no longer need a payday loan to save the home budget.
Growing consumption favors the credit and loan market
For many months in Poland we have had great indicators regarding economic growth and GDP, and as it turns out, their main driving force is private consumption, purchases. The increase in income caused by higher wages and the monthly cash injection under the 500+ program not only limited the process of borrowing money for repayment of debt, but even encouraged Polish families to spend more. So we can observe the surprising effect of the increase in wealth – the more money we have, the more money we spend, and… we are more willing to incur obligations. The newest indicator of the Consumer Finance Market Barometer shows the good prospects for the consumer credit market (both bank and non-bank), which shows the tendency for household indebtedness in Poland. Its value in the fourth quarter of 2017 increased from 55.5 to 56 points, which means that in the coming months we should observe an increase in interest in consumer loans. The question is whether they will be short-term payday loans or maybe installment loans?
Payday loans versus installment loans
Typical payday loans, i.e. low-value loans with a repayment period of up to 30 days, are today granted mainly via the Internet and this can prove to be a great strength in competing with, for example, bank loans. Loan companies have not been idle for the past few months, but have worked intensively on improving the offer and modernizing the technology that affects the speed and convenience of applying for an online loan. – Today, the market is won primarily by companies that have simple formalities and transfer money quickly, in a few minutes instead of days.
The degree of technical sophistication of the company providing payday loans is a key factor that determines its success. Promotions such as “first loan for free” are equally important, but it is clear that payday loans are increasingly losing with installment loans, which are still on the market. It is likely that there is a greater demand for higher loan amounts that are easier to pay back in installments than once per month, as is the case with a classic payday loan. “
Payday loans with a deadline of up to 30 days are incurred primarily in amounts of up to $ 1,000, which is intended to cover current expenses. So they are mainly used by young people who reach for such loans simply via a smartphone. These types of loans are not available in banks, which also means that online payday loans do not have to worry about their future. Companies offering them should, however, accept that when buying more expensive consumer goods, consumers prefer installment loans, and according to experts, they will be more popular in the coming months.