2019 has been a tough year for short term lenders, with some of the UK’s largest companies falling into administration.
Following the casualty of Wonga in 2018, some big names have followed suit, including The Money Shop, QuickQuid and WageDayAdvance. Many have been unable to cope with the strict regulation enforced by the FCA and rise in compensation claims by ex-customers.
As the short term lending industry becomes a tougher place to do business, we should see the rise of loan alternatives thrive in 2020, as highlighted below.
Help from employers
Those looking for short term loans of £100 to £400 can find assistance through work. There are cash advance schemes available for those working in large companies such as supermarkets.
However, some start-ups are looking to partner with employers to help solve the shortfall in cash. This included Wagestream who have raised £15 million to help borrowers access funds from their employers, any time of the month. There is no need to wait until payday, if you need money half way through the month or any particular date, you can take out what you have worked for and earned up until that point.
Another start-up, neyber works with employers to help their staff not only borrow money on affordable terms, but also provide financial workshops, education and advice for budgeting and managing pensions and other investments.
Short term lenders with more flexibility
2020 will see a number of lenders thrive if they can offer flexibility to their customers ? rather than allowing customers to fall into the traditional payday trap.
One lender is Fund Ourselves, which rebranded this year from being Welendus, offers short term loans of 2,3 and 4 months, with an extension of up to 12 months with no added fees or penalties. The London-based lender is focused on offering affordable loans that will improve their customers’ financial position.
Shifts towards bad credit products
Many former payday and high cost credit consumers will turn their attention to other alternatives and bad credit products in 2020. This should see the rise in products such as guarantor, secured lending and credit lines.
These types of products often require much more security (especially guarantor and secured) but offer lower risks to lenders, hence they should be able to stand the test of time.
New wave of companies
Where some see failure, others will see opportunity. In a more regulated setting, we should see a new wave of lenders starting to enter the short term lending market. They will be able to start with a clean slate and no historical loans which could inflict heavy compensation pay outs.
Equally, these new lenders and start-ups should have a greater understanding of how they can trade in a regulated environment and be profitable.
