High Consumer Demand Leading to New Short Term Lending Products

High Consumer Demand Leading to New Short Term Lending Products

Supply and demand is a basic principle of economics. Critics wonder how payday loan lenders seem to be multiplying, despite increasing local and state regulations, and almost unanimous negative press? The answer is simple; banks have tightened their lending criteria, and millions of Americans have lost wages, savings, jobs and even houses. This has created a niche for loans and lenders that accommodate small dollar amounts and borrowers with less than perfect credit. 

Payday loans have been around for years, but it hasn’t been until recently, within the last half decade or so, that the industry has really taken off.  Business is doing so well, in fact, that banks and credit unions are now developing products to compete in the short-term loan market. 

How does Charles Darwin relate to economics and the lending industry? His theories of evolution and survival of the fittest are constantly on display. After decades of static products like car title loans, pawnshop loans, and cash advance loans, industry growth and increased friction between lenders and local governments has led to an evolution of the product. Where there is consumer demand, competition is sure to follow.

Nonprofit community financial institutions are now starting to jump in. Realizing that all the bad press for banks and payday advance lenders is surely alienating potential customers, these local groups are establishing products to serve their constituents while helping them navigate tough financial times. In a country known as the land of opportunity, where variety is the spice of life, the economic downturn has led to short-term loan options becoming as plentiful as fast food chains. 

Just like local governments write laws to address specifics need in their towns and counties, local lenders are crafting loans that are more personal responses to local and individual situations.  Like in Brownsville, Texas, where the Community Loan Center is giving customers 12 months to repay their small dollar loans.  

The incredible demand for short-term loans is effectively bringing competition to the industry. In order to survive, lenders will be forced to improve their lending products, offer better rates, and better customer service. As the industry continues to evolve and mature, the products will improve as well, and customers will benefit.