Payday Loans Prove Reliable in an Economy that Isn’t
The best thing about payday loans is that they are reliable. In a post recession period, a lot of people are finding that the credit industry isn’t what it was before. The past year saw consumers rethink using credit to make purchases, as they had done in the past. Recessions inexorably lead to less discretionary spending, and this one is no exception. This isn’t good news for industries that have business conditional to consumer spending,like credit card companies.
Fitch Ratings recently reported that income of U.S. credit card companies will “continue suffering because of the lousy labor market, bankruptcies and bad loans.” They also cite that the unemployment rate over 10% is expected to last for most of 2010. “As a result [of the unemployment rate], the losses of credit card issuers could worsen further,” they stated.
The Consumer’s Relationship with Credit
Consumers have had a good relationship with credit card companies over the past few decades. While it was slated to benefit the credit card company more, consumers were still able to purchase big-ticket items they couldn’t normally afford without it. Credit card companies became lax, though. According to an economic analyst for Fitch, Justin May, “Lending companies were like fat and happy old men thinking their feast would last forever… What they didn’t realize was that nothing lasts forever. Even their bread and butter.”
From 2006 to 2007, credit companies were handing out credit left and right. They did little to study an applicant’s history or present financial situation, much less their ability to repay the debt. After extending too much credit and no return, credit card companies realized they were in a serious financial bind. Companies had little recourse when the recession peaked because a lot of people simply couldn’t afford to pay their debts. Many people fell into foreclosure, bankruptcy or just ignored their financial commitments. All three were bad news for credit card companies who at one time had a strong tie to the consumer market. All of a sudden, consumers that needed some quick cash on credit, were looking at payday loans, or friends and family and other means of finding funding. No longer were credit companies the only viable option for consumers in need of help.
What the Recession Has Taught Us
Now that the recession is officially deemed “over,” there are some lasting concerns. Credit card companies are still writing off debts and reeling. It’s estimated that there is about $ 3.5 billion in debt that companies won’t likely ever see. Consumers are still struggling to find funds. The market might have stabilized to some degree, but many purse strings remain tight as a drum. People aren’t clamoring to use what little credit they have, and credit companies aren’t extending any. Most people have tarnished credit reports now and don’t qualify under lenders strict policies. May added, “Credit card companies don’t want to risk any more than they have to and aren’t extending credit to those who need it. Though that is what they have been accused of doing for years, if they don’t extend credit soon, they won’t have a business.”
In the end, it will be up to the consumer to get the market rolling at full-steam once again. Though payday loans and family lending have sustained them thus far and proven to be more reliable options than credit card companies, hopefully they will change their ways. Lending companies are hoping people will start using credit to spur the credit industry on, once again.