Short term loans are often portrayed as intrinsically predatory, but working people have always sought ways to cover the shortfall before payday. Despite the reputation, short term lending satisfies a very real economic need that has a massive impact on peoples’ lives.
While mainstream banks raise their lending thresholds, how are those on low incomes expected to survive economic shocks? Or pay for a one-off expense?
It’s time to be honest about why people seek short term loans and how they can be responsibly catered to.
The Reality of the “sub-prime” market
You’d be forgiven for thinking short term or “sub-prime” lending was a niche market- but here are some staggering statistics:
- There are 13 million cash constrained consumers in the UK
- 60% of Britons have less than £100 in their account by payday
- 43% of disposable income is spent within 24 hours of being paid
- 81% of disposable incomes is gone after a week
- 30% of people do not have a savings account
- 33% of working families have less than £1000 in savings
- 25% of working adults have less than £200 in savings
These figures illustrate that a massive segment of the population would struggle to cover an emergency cost or sudden change in circumstances. The market is far from niche.
That fact is further underlined by the influx of consumers using buy now pay later, or owing money to other unregulated lenders like loan sharks.
But where else should working people turn?
How much does the average person want to borrow?
The average Libity loan amount is £300. With over a million loans issued, it’s fair to assume that figure reflects the needs of the wider short-term demographic.
However, most banks require a minimum loan amount of £1000 paid back over at least three months.
That means a customer could pay more in monthly payments than they wanted to borrow in the first place.
Plus, the extended payment time keeps them in a cycle of persistent scarcity- easily leading to additional loans, and potentially tipping over into problem debt.
Why is it like this?
Regulatory changes in 2015 left most big banks with legacy systems that are hard to update. It was easier to change the lending criteria than the underwriting process.
That works out alright for banks. Larger capital yields higher interest.
But it’s not fair to everyday consumers. Why should they borrow more than they need and pay back more than they can afford?
The answer is simple- they shouldn’t. And for many, their credit report or I&E will make them ineligible for a high street loan.
Protecting consumers with responsible short term loans
This is where Libity becomes a lifeline for consumers.
Small loans paid back over a short period of time help consumers achieve their financial goals in both the immediate and long term.
They can cover emergency costs or one-time expenses without carrying around the debt indefinitely. They aren’t forced into a lending situation that at best isn’t affordable (mainstream bank) or is at worst dangerous (loan sharks).
Libity loans are specially designed to cap interest relatively early on, so a borrower can never owe more than double the initial principle.
The interest rate on a short term loan is higher than a mainstream bank loan, but research shows consumers worry more about month-to-month affordability than long term costs. Paying an additional £20 on a £100 payment takes less out of monthly budget than £10 on £200.
Libity can help them borrow and spend the way they want to, safely and responsibly.
Help not shame
Short term credit is an inevitable part of today’s economy.
Instead of ignoring or exploiting the customers who need it, Libity is pioneering a new approach to financial services that emphasizes the service.
Our products are designed to help people achieve their goals and live their lives.
No jargon. No gimmicks. Just the help people need when they need it.
