A broker in the short-term loans market has highlighted the need for more options for borrowers. Following the dismissal and administration of some of the UK’s largest lenders, the 3 million people that use payday lending or high-cost credit in the UK are limited in terms of their options available, he explains.
Ian Sims is the founder of Badger Loans, a broker who offers no fees for finding rates from over 50 lenders, is noticing the fall in the number of lenders operating and approving new business.
“For years, the short term credit industry has been thriving and approval rates were high,” Sims recalls. “But following the wave of companies exiting and coronavirus pandemic, the number of loans available has diminished – and this is making it tough for people who rely on this source of finance and need it most.”
The last 5 years has seen a huge crackdown of the payday loans industry which was regularly criticised by the press and government for charging rates exceeding 1,000% APR.
The industry regulatory, the FCA, introduced a price cap of 0.8% per day, a strict authorisation process for any lenders and borrowers and tough measures for customer approval.
The result has seen a number of brokers and lenders leave the industry but the real turning point has been the emergence of compensation claims where ex-customers have been able to reclaim thousands of pounds for any potentially mis-sold loans. For payday kingpin Wonga, the company fell into administration following a reclaim bill of £500 million.
“The market is calling out for new players,” Sims continues. “They do not have too big or flashy or looking to lend large quantities, but a simple, responsible lender who is willing to credit check and run affordability metrics for people looking for £200 or £300 will be highly effective.”
“A lot of the customers have less than perfect credit scores, so new lenders need to take this into account and any newer products that include guarantors would also be welcomed.”
“Borrowers also have a role to play. Building up their credit scores would make them eligible for more products and they should borrow responsibly, rather than using multiple credit cards and living on revolving credit.”