Small Loans Australia :: Articles

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.

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
The Truth Behind Payday Loans
There’s a lot been said about payday loans. Many claim that the interest rates charged are outrageous. Others say that they are the only source of finance available for those with less than perfect credit score. There is a bit of truth in both claims but there is much more to payday loans than meets the eyes. - read more
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
How to Buy a House with Bad Credit
Most people would expect that a bad credit rating would make it impossible to get a mortgage to buy a home - but it's not as simple as that. Can you buy a house with bad credit? The short answer is YES, but it is not all that easy. - read more
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
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
Balloon Payment Loans: 6 steps to make the loan profitable
Did you know that you can reduce the monthly payments on a loan to half of what they should be by using a balloon payment? Handled correctly, structuring your loan to include a Balloon Payment will increase your bottom line. Mishandled, a Balloon Payment can cause real headaches. Here are 6 steps to keep it smart. - read more
Why did my Credit Score drop - and how can I fix it?
Your Credit Rating (or Credit Score) plays a very important role in determining your eligibility to get a loan. Here we look at the reasons why your credit score may drop and some handy tips to avoid this problem. - read more
Simple Tips On Getting Your Loan
So, you want to get a loan? Here are some simple tips that might help you make more informed decisions about the type of loan you buy, and from whom. - read more
18 Hot Tips For Intending Borrowers
If you're thinking of borrowing money to buy a car, boat, debt consolidation, home repairs, medical bills or anything else for that matter, here are some red hot tips to make the process much, much easier. - read more

Finance News

Personal Loans to help Australians in need: FSO
Oct 29 :: As Australia prepares to clean up following devastating fires and floods, Financial Services Online CEO, Andrew... read more

Small business loans to help Aussie businesses through tough times
Nov 27 :: Financial Services Online has today announced a new credit facility for Australian business customers who are... read more

Police issue warning about bank scam
Nov 20 :: Melbourne police are warning people about a scam in which fraudsters pose as bankers and ask for money.They... read more

ANZ nets solid profit despite wealth management
Oct 26 :: ANZ banking group has reported a solid full-year result with net profit attributable to shareholders up 6 per... read more

Millions lack access to basic financial services
Jun 01 :: Nearly 3 million Australians do not have access to basic financial products such as a credit card, car insurance... read more

Reserve Bank leaves interest rates steady
Apr 04 :: The board of the Reserve Bank of Australia has left interest rates unchanged at 4.25 per cent at its monthly... read more

Big banks not too profitable: RBA
Feb 25 :: The governor of the Reserve Bank says the Australian banking sector is not too profitable.Appearing... read more

Commonwealth Bank changes ads following ASIC concern
Jan 16 :: The Commonwealth Bank of Australia has agreed to change some of its advertised loan comparison rates... read more

Inflation fall strengthens case for rate cuts
Dec 06 :: A leading unofficial measure of inflation eased last month due to falling food and fuel prices, strengthening... read more


Need Help Finding a Loan?
Find out now if you qualify and compare rates, offers and options from multiple lenders - without a credit check!
All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase
Mortgagor:
A person who offers to assign an asset as security (e.g. real estate) under a mortgage loan contract. The lender (mortgagee) holds the legal ownership of the security until the loan is repaid and the mortgage is discharged.


Quick Links: | Small Loans | Student Loans | Finance Australia | Quick Finance | No Credit Check | Payday Loan | $5000 Loans