Over the last ten years or so, the instant payday loan industry has seen phenomenal growth, both in terms of number of companies operating in this market as well as in revenue generation. Payday loans are short term, small amount loans taken to be repaid by the next salary day. There have been a number of contributing factors for the growth of this industry in Australia. Some of the main factors are:
1. Deregulation of banking industry. This step was the first major reason leading to the growth of these businesses. With deregulation, the banks were permitted to decide on their own strategies to beat the competition and maintain profitability. This resulted in banks withdrawing from the market of small amounts lending to lower income groups leaving the field wide open for private players to provide them cash advance loans.
2. Stagnating and lower incomes of the lower strata of population. In the last ten years or so, the gap between the rich and the poor has increased. The rich have grown richer since they have the disposable funds to enter the new businesses and capture the markets. The rising costs of living have further added to the problems of the lower income groups who already have stagnant incomes and reduced purchasing power.
3. Rising use of credit: The banks have, on one hand, withdrawn lending to the small borrowers, and, on the other hand, given great impetus to the use of credit cards. The same are also available to the lower income groups as well which forms a part of the problem of indebtedness and increased use of instant payday loans.
4. Negative credit scores: The bad credit ratings reported by the lenders for the borrowers make it difficult for the latter to seek further loans from the mainstream lenders. Bad credit payday loans can be taken by people who do not have from any other source. Once one enters in to cyclic conundrum of indebtedness, it takes a lot of resolve and help from experts to come out of it.
These have been the main reasons fueling the many folds growth of this business in the last one decade. These have also got their share of criticism and there have been demands for better regulation or altogether banning of this industry since it increases the indebtedness of the low income people. Those who support them point out that these fill a very crucial gap of providing instant payday loans to the needy people.
