Are payday loans the new credit option?
Payday loans are gaining popularity in today’s market because other funding options are becoming extinct. In former times consumers looked to credit cards in times of trouble. Many people have an emergency card in the kitchen cabinet that was only to be used in dire times. This is no longer the case because credit card companies are seeing this tactic as a red-flag customer.
Analyst for Tower Group, a research firm, Dennis Moroney said, “If someone is inactive for a long period of time and out of the blue the card comes out of the kitchen drawer and they start using it, chances are things have changed and not in a good way.” To limit exposure to risk, credit card companies are automatically closing accounts that have been dormant. This is not good news to customers who thought the credit card option would be there in a time of financial hardship.
Credit card companies safeguarding themselves
Many changes are taking place in the credit card industry. Because of the market, companies are restructuring themselves to minimize their risks. One tactic they are using is to cut back on grace periods. While consumers used to get a small amount of time to avoid finance charges, that time is being compromised quickly. By the time card holders receive their statements, they may be left with just days to avoid finance charges, while in the past there was a window of 25 days for them to pay. Credit card companies are closing that window quickly.
Another tactic is that the credit companies are targeting college students as new customers. Statistics show that credit card debt averages have increased 44% among college seniors in the past four years. This group has been targeted so much that the CARD Act is demanding that everyone under 21 years of age completes a financial literacy course prior to being issued credit cards. It’s protection for consumers entering the market with little to no experience with credit.
Finally, credit card companies are also slashing card holders’ limits, even if those limits are under their current debt. This makes the consumer’s credit score plummet because it looks like they overcharged, when in reality they didn’t.
These tactics are all indicative of a shift in the credit card industry. No longer are these companies looking out for customer, but rather they are safeguarding themselves, at the expense of the customers. This is changing the way consumers are able to rely on credit and forcing them to look to other options such as payday loans and other cash advances for funding.
Where does that leave the consumer
The recession is causing a great shift in a wide number of industries. Auto manufacturers, banking, credit card companies and retail outlets are all suffering. The result is higher unemployment rates, lenders cutting back and more and more businesses closing altogether. In the midst of it all, consumers have to find ways of making it through their budget constraints.
Many are turning to payday loans as a normal monthly to-do and working it into their financial plans for the future. Until things are stabilized, many Americans will be searching for funding options. Hopefully when the economy finally balances itself out, lenders will be able to return to normal. If not, the payday loan option is always available.
I think the central thought process behind the finance industry is that the business is more important than the customers’ satisfaction, or the relative quality of the product or service for the consumer. The real comedy is that the consumer, in other words, the person with the demand, is who creates the need and opportunity for a company to exist in and of itself. If the card companies can’t adjust themselves to what the consumer is willing to tolerate, then credit card companies might end up as boutique companies – and people might start just paying cash for things, and only as needed…a scary thought. If that were to happen, people might stop looking to magazine inserts, commercials, and other media that tell us a bunch of plastic crap we don’t really need for guidance on life. They might even – perish the thought – start thinking for themselves.