For years now the payday advance lending industry has been under fire. Government agencies, consumer advocate groups and the news media have made no bones about their disdain for payday advance loans. The Consumer Financial Protection Bureau, in particular, has been on a mission to literally cripple the lending companies that provide payday loans.
Operation Choke Point was put into action by the federal government a few years ago, and helped to successfully limit payday advance lending companies access to essential banking services. New rules from NACHA have made it difficult for payday advance loan providers to use the automated clearing house system for payment processing. The CFPB has managed to introduce proposed rules that could lower the volume of payday advance loans by up to 85 percent.
With all of the pressure that has been on payday advance lending companies, it is easy to understand why these lending companies have begun adding installment loans to their available services. An installment loan is typically for more money than the standard payday loan, but allows consumers to space out their payments over a longer period of time. Since advocate groups and government agencies seem less interested in vilifying installment loans, one can easily understand why payday advance lending companies have decided to start offering these types of loans to their customers.
Differences between Payday Advance Loans and Installment Loans
Any payday lending company owner who is considering offering installment loans should be aware of key differences between standard payday advance cash loans and larger, longer-term loans. Failing to differentiate between these types of loans, while using the same strategies that lenders typically use for payday advance loans could result in less than stellar results.
Payday advance cash lending companies may be used to hardly ever having to deny loans to their customers. However, installment loans are typically given for amounts ranging from $1,000 to $10,0000. Factor in that most installment loans can run for terms between one and four years, and it becomes crystal clear that the average payday advance loan customer may not be the ideal candidate to take out an installment loan.
It should also be stressed that the interest charged on installment loans is often somewhere around 36 percent. Most installment loan borrowers, like most payday advance loan borrowers, have less than perfect credit. These consumers know that they will usually have to pay more for loan fees and interest rates because of their subprime credit scores. Still, though, a person who simply needs $300 for an emergency car repair is likely not going to want to take out a substantially larger installment loan that will take years to pay back.
It all really comes down to the fact that payday advance lenders will need to change their mentality with regards to wanting to push installment loans on every one of their customers. Many repeat payday advance cash borrowers simply will not be interested in installment loans. Others may not be able to even get approved for one of these loans.
While installment loans can help to bolster payday advance lending companies that are feeling pressure right now, it is vital for lenders to consider the differences between the financial products they are used to offering and installment loans. Like anything else in the financial world, the devil is in the details, and lenders would be wise to become very familiar with installment loans and develop new policies and procedures to effectively offer installment loans to their customers. With a smart plan in place, there is no reason that payday lenders cannot successfully add installment loans to their regular rotation of available financial products.