The high-cost short term (HCST) lending industry has come under much scrutiny within recent years, as many have found to charge interest rates exceeding 1,000 percent. In response to these unmanageable rates, there have been major regulatory crackdowns to help restrict these infamous lending giants.
In the U.K., for example, the Financial Conduct Authority (FCA) have encouraged borrowers from these notorious lending giants to make claims on any loans they felt they were mis-sold. This included any loans that did not follow adequate eligibility and affordability checks, which led to financial debt.
The result on lending giants were fines in the millions, and sometimes hundreds of millions, falling into administration as a consequence.
While some of the most infamous of these lenders have now fallen, the demand for short-term finance remains substantial. In attempting to tackle this demand for finance a better way, both U.K.- and U.S.-based companies are offering salary finance products, helping those in need of finance to access funds via their salary before payday.
Salary Finance, for example, is just one of these payday alternatives for workers. The company is able to offer workers a salary advance, a loan (considerably low-cost), or the chance to save via the employer’s payroll.
The amount of pay that can be accessed by employees, as well as how frequently they can access it, is decided by employers. Employees accessing these advances will be required to pay a small fee, however, it’s significantly lower than that charged by notorious payday lenders.
Research by Salary Finance found that 48 percent of workers in the U.S. suffered from impaired finances. While financial problems are often stigmatized, Salary Finance are working with companies throughout the country to help change this, launching its core loan product in June of 2018, and hoping to launch similar products in the U.K.
In the U.K., a number of startups have launched as a response to demand for short-term lending in a fairer, more manageable way.
Fund Ourselves is a fintech company based in London, offering peer-to-peer (P2P) lending opportunities. Through the platform, borrowers can take out short-term loans for up to three months, with no early repayment charges, and a maximum interest charged of 0.8 percent a day. Additionally, if borrowers are struggling financially, an interest-free extension can be added to the loan (maximum 12 months), to help borrowers get back on their feet.
As a P2P platform, Fund Ourselves also offers people the opportunity to invest their money via lending to borrowers on the platform, returns of 5 percent to 15 percent per annum available.
Nadeem Siam, founder and CEO of Fund Ourselves, said he wants people to leave in a better financial position than when they started, and not worse off:
“We are totally committed to providing smarter and simpler ways to deliver financial services, helping individuals to borrow or invest in a self-serving marketplace that is easy and safe to use,” Siam said. “We believe we can empower people by disrupting the status quo with our fintech products and change the way people go about their financial lives.”