How Banks Operate Payday Lending Business in Disguise

When people need quick loans, they first turn to their bank, but while traditional banks offer low-interest loans, they only lend to individuals with rated credit scores. If an individual’s credit score is low and doesn't qualify for a bank loan, they may turn to a payday lender for help. The problem is that payday lenders offer loans at higher interest rates compared to traditional banks. However, did you know that banks provide other options?

Meet the New Payday Loans in Banks

Previously, traditional banks only offered borrowers revolving credit products, such as a credit card or a line of credit with low interests and costs. Occasionally banks can offer installment loans with long-term repayment options, but only to particular customers.

Traditional banks now have options for small-dollar, high-interest lending but swear they aren't payday loans. Rather than calling them payday loans, banks prefer names like short-term loans or Simple Loans. However, many of the same factors, such as high costs, short repayment terms, and the potential for creating a debilitating debt cycle, are the same as payday loans.

How Are Banks Doing This?

Like payday lenders, such as Real PDL Help, banks now try to find clients in areas with disproportionately low-income residents, preying on their economic insecurity. They're seeking to tap into the small population of repeat borrowers who're usually low-income earners and small businesses and take loan after loan for their survival. Some banks are even using their large customer base to offer payday lending and loan consolidation services taking examples from payday lenders. These borrowers pay hefty loan fees that outweigh the loans' economic benefit and end up stuck in a debt cycle.

Banks are getting more customers because they can offer installment payments, unlike traditional payday lenders. These small installment-based loans may find their way around bank regulations without being classified as payday loans. Banks can claim that these short-term, small-dollar loans are affordable, different, and safer, but they are no different from predatory payday loans.

Why Are Banks Doing this?

For some time, the survival of banks has been determined by how well they can determine their role in the digital world. Established financial institutions such as traditional banks are today confronting an uphill battle to stay up with the capabilities of digital-first competitors. These competitors include payday lenders and online money transfer platforms like PayPal, Stripe, Square, Amazon pay, Apple Pay, or Skrill. Banks struggle with this competition while ensuring that their existing systems continue without interruption, and as a result, they evolve exponentially.

Banks don't have an alternative but to embrace the world's digital transformation and customer-centric products, including payday loan help. In this process, banks capitalize on their numerous societal and corporate benefits that position them above other financial institutions.

Endnote

As the face of the world continues to change and every business and industry adopts digital transformations, banks haven't been left behind. Amidst the change, traditional banks today embrace the infinite opportunity and potential of the economic benefits of small-scale lending. For banks, the competition at the bottom for low-income earners and small businesses is now as complex as the competition at the top for high-income earners and corporations.