US lenders record a stable growth in demand for payday loans. At the end of the first half of the year, the aggregate portfolio of microfinance institutions reached $2,9 billion.
It is noted that in April-June the loan portfolio grew by 8% compared to January-March of the current year and by 34% compared to the second quarter of 2020. The main dynamics were provided by online loans issued via the Internet and an increase in the average loan size. The volume of overdue debt in microfinance institutions does not cause concern for the regulator: the net profit of microfinance institutions for 6 months of 2021 increased 2.1 times compared to the same period last year, to $175 million.
Modest share
Nowadays, there are about 300 microfinance institutions in the US market. In 2021, 195 companies were excluded from it for various reasons (voluntary withdrawal or law violation). Taking into account the registered lenders included in January, the register of legal microfinance institutions decreased by 7%, for the entire last year – by 23%.
The fact that the quantitative contraction of the microfinance market will continue due to the inability of regional companies to set up online issuances was discussed several years ago. Thus, the share of online payday loans Illinois issued in 2021 has increased to 81%. Payday loans have become very popular due to several reasons: relaxed eligibility criteria, fast online application, and same-day funding. Besides, such loans can be used for whatever purpose, and all credit scores are accepted. Loan terms are flexible, and the process involves no collateral. To get approved, you only need to have some kind of identity verification, a valid bank account in your name, and a steady income. Each city in Illinois has their own number of licensed payday lenders, their own rates and terms. You can get comprehensive information about payday lending in your city via the Internet – in a few clicks. Thus, if you reside in Belleville, payday loans in Belleville Illinois will be the best solution for your unexpected money needs, and if you are a champaign resident, choose payday loans in champaign IL. The given pages also contain user reviews and lenders’ ratings in the state.
According to the regulator’s estimates, the rapid growth in the share of approved online applications began from 30% at the beginning of 2019. At the end of 2021, it was already 43%. And in 2021, the growth in the share of approved online loans was 54%.
According to experts, about 40% of MFI clients spend more than 80% of their monthly income on servicing their debts. In the field of bank lending, the requirements for the load on the client are much more stringent: no bank will issue a loan if more than 50% of income is spent on servicing it.
Loan repayment delay is stable
According to the statistics, US residents began to take out “long-term” payday loans, and the requested loan amount increased too.
But the II quarter of 2021 turned out to be force majeure for all creditors. Then the share of medium-term loans, due to more stringent approval conditions, fell by 38% against 18% in the short-term segment (payday loans).
If we compare the dynamics of the second quarter of 2021 to the first, the picture will turn out to be completely different, here we will see a significant outpacing of the growth rates of the short-term microcredit segment by 24% versus 12% in the medium-term segment. The dynamics against the background of high growth rates of food inflation looks more logical, that is, people used payday loans in order to cover the missing share in income.”
The increase in the volume of payday loans has not led to an increase in problem debts. According to the regulator, the share of more than 90 days overdue loans in the portfolios of MFIs is stable and remains at the level of 28.6%. For this segment, this is not a critical level. Experts note that the share of bad debts should decrease with the qualitative growth of portfolios.
The client’s portrait has changed
In 2022, MFIs were forced to strengthen the requirements for borrowers, for this reason, a new client profile was formed. It turned out to be relevant throughout the entire year since even now creditors have not weakened the scoring settings to the pre-crisis level.
The average age of a 2021 borrower was 28-29, now it is 31-32. In 2022, the gender ratio has normalized, men and women become borrowers with the same frequency. In 2021, mainly men took out payday loans – in 60% of cases.”
According to experts, the type of employment of borrowers at the beginning of 2022 is the same: in 80% of cases these are employees, but there are changes in the employment sector. There are more office professionals, transport and trade workers. The share of state employees, pensioners, householders, women on maternity leave has significantly decreased. Probably, government benefits have an impact.
MFI market participants note that the population’s interest in payday loans was influenced by deferred consumer demand. It turned out that the traditional summer recession, which begins due to vacation periods, did not occur in 2021: people were actively taking payday loans.
Obviously, the results of the first quarter of 2022 will be more optimistic: state payments to pensioners, children and the military will smooth the picture, freeing up a whole client segment from MFIs.
At the same time, the average size of a payday loan in 2021 increased by 5%. At the same time, it is about 20% lower than the average amount requested by borrowers.
Expert opinions
“The data on short-term lending for 2022 will be very important, it will be possible to judge more objectively the general dynamics in the industry. Some distortions towards a more positive picture in comparison with reality can bring social payments to schoolchildren, pensioners and the military. The forecast assumes a 20-25% growth of the payday loan portfolio with simultaneous preservation of the trend towards consolidation, primarily in the area of increasing online loans. Banks are becoming more active participants in the MFI market. The share of loans in the structure of funds attracted by MFIs began to actively increase in 2022. It reached multi-year highs in the second quarter of 2021.” Michael Capps, Senior Analyst, Forex.
“The previous year was marked by the continuation of a noticeable recovery in the entire US lending market, including in the microfinance segment. The volume of payday loans, and then the total volume of existing loans continue to grow. The growth is primarily due to the online segment. The dynamics of offline loans is even and comparable to the previous pre-crisis periods. In fact, the payday loan segment is the “youngest” on the market. It began to actively develop only in the last 2 years, with the entry of new participants. Over the course of the year, the pricing policy has stabilized and has become familiar, MFIs have learned to work with high lead costs and have brought purchases back to pre-crisis levels.” David Goodwin, Consumer Financial Protection Bureau (CFPB).
Category: General
Tags: finance, loans online, money, payday loans