Lending Stream

Lending Stream

February 17, 2010 01:00 ET

Bad Banks or Good Payday Lenders? The Dilemma of Choice During the Crunch

EDGWARE, UNITED KINGDOM--(Marketwire - Feb. 17, 2010) - Late last year, reports of traditional lending institutions wooing subprime borrowers with payday loans had surfaced from around the country. It is not a shocking fact, since more than 70 banks had gone bust in 2009 alone and quite naturally, most financial institutions are beginning to adopt new business strategies to make money and stay in existence. However, the question that we need to ask is – are banks a better bet than established payday lenders, who have drawn flak for their 'inordinate' interest rates?

Research shows that there isn't much separating these banks from payday lenders with regard to interest rates. The most competitive lenders usually charge between 20% and 25% for a 30-day repayment period, and the banks have a comparable slab. Add to this the fact that payday lenders, for obvious reasons, are better equipped to serve the payday loan needs of customers, who seek convenience, speed and flexible loan terms. Clearly, the scales tilt in favour of payday lenders, some of who also have a 'clean' reputation among borrowers.

"We specialise in payday loans and hence understand the pulse of the customer. It is not just speed, convenience and flexibility that set us apart; we pride ourselves on the excellent customer experience that we offer. Features can be built or added, but for strong bonds of trust with the customer, one needs to consistently deliver the best service possible," stated a spokesperson from Lending Stream, a payday lender in the UK.

For centuries, loan borrowers relied on banks for their cash needs. However, when the crisis struck and several large lending institutions went bust, the reliability of banks took a hit. Moreover, with advancements in technology, consumers had begun to expect more out of loan services, speed of delivery being one of them. The arrival of payday lending meant people could receive cash within hours and repay at their own convenience. Payday lenders eventually gained the upper hand, leaving banks to vie for a share in the business by replicating the loan model.

"It would take the banks some effort to be as successful as payday lenders, with this business model. Till then, for people with urgent cash needs, an online cash lender remains the best bet," the spokesperson added.

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