How Financial Technology Can End Payday Loans
As you may already know, payday loans are debt traps mainly due to their short term nature and very high interest rates. However, this may not last long due to the introduction of FinTech companies in partnership with banks.
What is FinTech?
Financial technology is the integration of technology with traditional banks that facilitate their daily transactions. Consumers who cannot get loans due to lower credit scores are now better able to do so because fintech will help them.
In addition, good apps like Earnin are emerging that will help consumers get payday advances. For example, you’ll get what you’ve worked for with the Earn app whenever you need it.
Fintech also ensures that consumers can easily access their banking services through mobile phones from the comfort of their homes. As a result, mobile banking makes it easier to deposit, withdraw, transfer, save, and invest money.
So those who don’t have a job have a shoulder to lean on with the invention of fintech. Fintech introduced digital currency like bitcoin and online trading platforms. As a result, cryptocurrency activity is growing day by day. People have learned the importance of gaining financial freedom, and everyone is working towards this goal.
What Are Payday Loans?
Payday loans are the loans you get and pay off on your next payday. The loan terms for payday loans do not exceed two weeks. In addition, you will make the full loan repayment – loan amount plus interest.
Their main feature is the high interest rates, which start from an APR of 391%. As a result, payday lenders tend to catch those who are in need of quick cash but have poor credit scores.
How will financial technology end payday loans?
Now that you know the meaning of financial technology and payday loans online, I’ll guide you to where the fight is.
1. Payday Lenders Won’t Tackle Those With Bad Credit
Fintech works to help people with bad credit get better deals at community banks. Financial technology enables employers with advanced technologies to offer advances to their employees.
In most cases, with fintech, consumers get loans with no fees or small fees of no more than $ 5. And that is why payday lenders are on the verge of collapsing.
2. No more high interest rate loans
Payday loans are very expensive in interest rate. Research shows people pay more than $ 9 billion in payday loan fees in the United States. This finding shows how expensive payday loans are.
However, with the introduction of financial technology, payday loans are slowly becoming a dream of the past. Instead, consumers get better deals on getting emergency cash whenever they need it in the middle of the month.
3. Financial technology has improved the functioning of traditional banks
Connecting technology with banks not only helps consumers obtain low-interest loans, but it has also improved customer service for banks.
It is easier and more convenient to get free banking services on your mobile phone. You won’t have to go to a bank looking for a loan service.
So payday lenders have nowhere to hide their shady deals for desperate consumers.
4. Financial technology enables consumers to rebuild their credit rating
With the coronavirus pandemic, banks are understanding how their consumers are facing tough times financially. So, with the help of fintech, banks can provide their consumers with credit rebuilding loans at very low interest rates.
Payday lenders do not help borrowers improve their credit rating. Instead, taking a lot of payday loans will end up ruining your long term creditworthiness.
5. Access to more financial services
With fintech at your fingertips, you can access banking, loans, and savings and investment services. This feature allows consumers to set and achieve financial goals.
Consumers will focus on getting loans on their own, but they will also save money, which will allow them to gain financial freedom. In addition, some banks offer automated savings services, which are of great help to consumers. And all of this is happening thanks to the development of financial technology.
Payday lenders do not offer any financial services other than providing high interest loans.
The bottom line
Payday loans are likely to drop soon. Consumers are tired of having their fingertips. So don’t be surprised if payday lenders leave the money market within the next ten years.