What are payday or short-term loans? The answer to this question is that payday loans, often known as short-term loans, are intended to bridge the gap for few months or sooner you can pay back the total lent amount with the addition of interest. These loans are frequently utilized to cover unexpected expenses that you cannot cover from your monthly salary or savings. They are easy to borrow, but they worsen your situation if you cannot pay them on time. You don’t have to hurry as this article contains all the information about payday loans. What are these loans? And most importantly, why are they closing down in the United Kingdom?
Are you one of the loyal clients that used to utilize the lender service? And now you are confused about why they are closing down in the United Kingdom? In recent years, the payday loan sector has gotten a lot of attention and scrutiny. The majority of people believe that payday lending is a license to print money, but the Financial Conduct Authority intervened and declared war on payday lending. Since 2005, before the financial crisis of 2008 and the entrance of the FCA in 2014, lenders have been going out of business. FCA introduced strict laws, including more stringent affordability checks for applicants and a limit on the total amount a company can demand in repayments to double the original loan amount.
Besides Covid-19, there are different reasons behind every lending company for their closure. Some closed down due to public complaints about claiming restitution for allegedly mis-sold loans, some due to accounting irregularities. High interest rates are also one of the reasons it will be difficult for the clients to become debt-free.
When companies cannot afford bills when they are due, they undergo liquidation. It can also occur when the company has more liabilities than assets. Sometimes lending companies couldn’t make a profit, and they could not run their business, due to which they shut down. Last but not least, some collapsed due to rival companies. Maybe their rival companies are more competent, have the best advertising strategies, and have more convincing powers. They know how to urge people to borrow money.
After the outburst of COVID- 19, this pandemic may have been a once-in-a-lifetime opportunity for payday lenders to gain new customers. People may be forced to turn to high-cost lenders for quick cash in a weak economy. This time, though, the story took a different course. Hundreds of billions of dollars in federal help, such as direct cash payments and increased unemployment benefits, have had the opposite effect: lower demand.
Company’s That Have Gone Bust
One of the examples of payday lenders company is Wonga and Quick Quid. These two companies belong to the list of lenders that have gone bust.
Wonga was the subprime lending industry’s monster. It had formerly bragged of having over 1.5 million customers and a total loan portfolio of over 4 billion pounds. Wonga revolutionized the payday lending industry with its slick marketing. Others were obliged to up their game if they wished to compete. Wonga’s company collapsed in August 2018 as a result of an increase in unscrupulous debt collection practices, high-interest rates, and misleading advertising complaints. They chose to file for insolvency because they didn’t see the number decreasing shortly. According to company accounts, Wonga hasn’t made a profit since the payday ceiling was implemented in 2015. They did, however, forecast a profit recovery in 2020. However, when the number of prior complaints increased, they realized that there was no longer a road to profit and closed, resulting in the loss of hundreds of employees. In 2022-23, the Wonga brand is likely to return to lending in the United Kingdom.
On the other hand, With about 400,000 customers after Wonga’s fall in 2018, Quick Quid was the UK’s largest payday / short-term lender. Quick Quid spent roughly £1.5 million per month on advertising their services in the UK at their peak. They decided to close because several claims firms were targeting them for mis-selling loans. Around 300,000 past customers are thought to be eligible to file a complaint. With each complaint potentially costing them roughly £800, they might have been liable for as much as £200 million to £300 million.
In recent years, the payday loan sector has gotten a lot of attention and scrutiny. Payday loans, as the name implies, are usually costly. They are due on the day of the borrower’s next pay check. The rule is simple: if you cannot pay the money back, then don’t borrow it. Don’t get yourself stuck in the swamp.