Everyone knows the credit crunch has impacted rich Wall Street bankers, homeowners, mortgage companies, and big banks. But how will the credit crunch affect the payday loan industry?
Well, here are a few thoughts. First, payday lenders may have a more difficult time getting "working capital" or loans to operate their business. The rates on their capital will rise. This could lead to tighter approval rules, or possibly higher loan rates. However, since U.S. lenders are regulated in most States, many lenders will not be able to raise their rates. Offshore lenders, that claim to be immune from State regulations, may raise their rates. U.S. based lenders (that follow the laws of the States they lend in), may be forced to tighten their approval rules.
But what about payday loan borrowers? Well, if the economists are correct, the U.S. consumer credit markets are going to get hit hard in early 2009, with one or more large credit card issuers hit especially hard. Customers that relied on their credit cards to tide them over until payday may be forced to turn to payday loans.
With the rising demand for payday loans, you would think that all payday lenders would benefit. However, U.S. based lenders that follow the laws of the States they lend in may simply choose to be more picky about who they lend to (to reduce their charge offs and bad debt). More consumers will be forced to resort to loans from more expensive (and possibly less reliable) offshore lenders.
Let's hope the credit markets free up soon!
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