Car Loans Australia :: Articles
SHARE

Share this article with your friends!

Why Payday Lending Enhances Consumer Welfare

Why Payday Lending Enhances Consumer Welfare

Today, We’ll defy the critics and demonstrate why consumer welfare is enhanced within a competitive payday-lending environment.

Critics argue that excessive payday lending charges hurt vulnerable households with increased household debt, delinquency and bankruptcy while reducing consumer spending in the economy.

Let’s take a closer look at why this ignores fundamental economic and commercial principles.

In January 2007, the Federal Reserve Bank of New York published ‘Defining and Detecting Predatory Lending.’

Within the paper, Donald Morgan cites empirical research in the more mature American market to show that people living in states with unrestricted payday lending have more ability to overcome financial difficulty, maintain consumption and repay debts.

Maintaining and Smoothing Out Consumption with Credit
Debt Stressed?
If you're struggling to pay your debts as well as covering living expenses, we are here to help. Through our national panel of Debt Management specialists, we can help customers with $10k or more in debt by consolidating your existing loans, stopping Debt collectors from contacting you and re-negotiating repayments on your terms!

If the ability to consume is reduced, households will demand credit to reduce fluctuations in their living standards and to maintain consumption.

However, households without credit are all alone or they must seek underground credit providers.

Interestingly, if payday lenders raise household welfare by relaxing credit constraints, anti-payday lending legislation may reduce welfare.

Ability to Manage Other Debts and Repayments

Morgan’s findings express the reality very well indeed - “Our findings seem mostly inconsistent with the hypothesis that payday lenders prey on, i.e., lower the welfare of, households with uncertain income or households with less education.

Those types of households who happen to live in states that allow unlimited payday loans are less likely to report being turned down for credit, but are not more likely, by and large, to report higher debt levels, contrary to the over borrowing prediction of our model.

Nor are such households more likely to have missed a debt payment in the previous year.

On the contrary, households with uncertain income who live in states with unlimited payday loans are less likely to have missed a debt payment over the previous year” (Morgan, p. 3, 2007).

“Delinquency rates were not higher for prey surveyed in 2001, even those living in states with higher or unlimited payday limits.

On the contrary, risky households (with uncertain income) surveyed in 2001 were nine percent less likely to have missed a payment if their state allowed unlimited payday lending” (Morgan, p.18, 2007).

There is no evidence from our experience that payday lending increases bankruptcy.

Credit has been very easy to access in Australia during the competitive, low interest rate environment in recent years.

In the few instances where clients have gone bankrupt, larger sums from multiple creditors were primarily responsible. People don’t go bankrupt over a few hundred dollars or even a couple of thousand.

Borrowing Flexibility

Payday loans allow consumers to access only what they need without committing to an unnecessarily large amount over a long period.

Many clients have excellent credit reports and can access mainstream finance. However, they prefer our style of credit to manage their finances.

Unlike credit cards or larger personal loans, the client enters the contract, meets their objective and promptly exits the contract. 

In sums, thousands of Australians are reducing detrimental outcomes for themselves by taking advantage of payday loan credit offered through Financial Services Online.

Share this article:

Boat Loan Specialists
We provide direct access to the best Boat Loan rates and options in Australia through a national panel of specialist marine finance brokers. Simply complete our quick & easy Boat Loan quote enquiry form to see if you qualify ... and to gain access to the best Boat Loan offers from our broker panel.


Finance Articles

Utilising A Chattel Mortgage for Business Finance Utilising A Chattel Mortgage for Business Finance
A Chattel Mortgage loan is a simple yet effective finance option designed for business plant and equipment purchases. Here are six rules to consider when arranging finance for your business that will ensure that you retain full control over the loan process and save money in the process. - read more
Credit Card Secret Guarantee Credit Card Secret Guarantee
Most people use credit cards in some form or another but few truly appreciate one of the special features of credit cards that make using their credit card to insure their purchases. - read more
When should I use a personal loan? When should I use a personal loan?
Unsecured personal loans can really help in a pinch. If your savings are low and your car breaks down, for example, such a loan can patch up your life. Or maybe you're buying a big-ticket item and you need backup money to cover a short-term hole in your bank account. - read more

Finance News

Interest rates up another 50 basis points with more hikes to come Interest rates up another 50 basis points with more hikes to come
03 Aug 2022: .

As expected, the Reserve Bank of Australia (RBA) raised interest rates by another 50 basis points this month. The fourth rate hike in as many months, today’s decision takes the cash rate from an emergency low of 0.1% to 1.85%. - read more
Business loans on the rise while mortgage growth remains flat Business loans on the rise while mortgage growth remains flat
02 Jun 2022: .

Australian business loans growth accelerated in April as mortgage growth stayed consistent, with major banks growing at less than the system average according to latest RBA data. - read more
Homebuyers up in the air despite new  government home loan support Homebuyers up in the air despite new government home loan support
29 May 2022: .

The government’s promise of an equity contribution will help the most disadvantaged Australians to get a home loan, but they still won't be able to afford one. - read more

Need Help Finding a Loan?
Get a free car loan eligibility assessment and compare offers tailored specifically to your circumstances.
Loan Amount:
Postcode:
All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase
Guarantor:
A party who agrees to be responsible for the payment of another party's debts should the original party fail to pay or perform according to a contract.