As you may know already, payday loans are debt traps, primarily due to their short-term nature and very high-interest rates. However, that may not last for long due to the introduction of financial technology (Fintech) companies partnering with banks.
What is financial technology?
Financial technology is the integration of technology with traditional banks that ease their daily transactions. Consumers who cannot get loans due to lower credit scores are now better able to because fintech will help them.
Furthermore, some good apps like Earnin are emerging that will help consumers to get paycheck advances. For example, you will get what you have worked for with the Earning app whenever you need it.
Fintech also ensures that consumers can easily access their banking services via mobile phones in the comfort of their homes. As a result, mobile banking makes deposits, withdrawals, transfers, saving and investing money simpler.
So, those without jobs have a shoulder to lean on with the invention of financial technology. Fintech has introduced digital money like bitcoins and online exchange platforms. As a result, the cryptocurrency business is growing day in day out. People have learned the importance of gaining financial freedom, and everyone is working towards that goal.
What are payday loans?
Payday loans are the loans you get and repay on your next payday. The loan terms of payday loans do not exceed two weeks. In addition, you will make the loan repayment in total – loan amount plus the interest.
Their main characteristic is the high-interest rates, that start from an APR of 391%. As a result, payday loan lenders tend to catch those who need fast money but have lousy credit scores.
How will financial technology end payday loans?
Now that you know the meaning of financial technology and payday loans online, I will take you through where the fight is.
1. Payday loan lenders will not prey on those with bad credit
Fintech focuses on helping those with bad credit scores to get better deals in community banks. Financial technology enables employers with advanced technologies to give advances to their employees.
In most cases, with fintech, consumers get no-cost loans or small costs of not more than $5. And that’s why payday loan lenders are on the verge of collapsing.
2. No more high-interest loans
Payday loans are very costly in their interest rates. Research shows that people are paying more than $9 billion in payday loan fees in the U.S. This discovery shows how payday loans are expensive.
However, with the introduction of financial technology, payday loans are slowly becoming a dream of the past. Instead, consumers get better deals to get emergency cash whenever they need it in the middle of the month.
3. Financial technology has improved how traditional banks work
The linking of technology with banks not only helps consumers with lower interest loans but they have also improved the customer service of the banks.
It’s easy and more convenient to get banking services on your mobile phone at no cost at all. You will not have to keep walking to a bank looking for a loan service.
So, the payday loan lenders have nowhere to hide their fishy deals for desperate consumers.
4. Financial technology is enabling consumers to rebuild their credit scores
With the Coronavirus pandemic, banks understand how their consumers are facing challenging times financially. So, with the help of fintech, banks can give their consumers credit rebuilder loans at very low-interest rates.
Payday loan lenders do not help borrowers improve their credit scores. Instead, taking lots of payday loans will end up ruining your creditworthiness in the long run.
5. Access to more financial services
With fintech at hand, you can access banking services, loans, and saving and investment services. This feature allows consumers to make financial goals and achieve them.
Consumers will focus on getting loans alone, but they will also save money, enabling them to gain financial freedom. In addition, some banks provide automated saving services, which are of great help to the consumers. And all that is happening courtesy of financial technology development.
Payday loan lenders do not offer any other financial services other than giving out high-interest loans.
The bottom line
Payday loans are at the risk of going down shortly. Consumers are tired of getting the raw end of the deal. So don’t be surprised if payday lenders leave the money market within ten years to come.