Many are faced with unexpected financial difficulties when a day or even an hour seems too long to wait for a loan to get approved. This is one such instance where a payday loan could come in handy. Among the various finance choices to consider, more people have begun to take advantage of the benefits offered by payday loans.
What is a Payday Loan?
Several types of loans are available in the market serving different functions. A mortgage lender helps with the financing to purchase a house. A student loan provides financial backup for college. And when the instant loan is required, payday lenders, typically Non-Banking Financial Companies (NBFCs), fund loans online, helping solve short-term cash crunch.
A payday loan is a high-interest, short-term loan, which is usually repaid by loan borrower within a month, unless, being offered for a longer-term by the lender. In simple words, it’s a prompt funding option that helps manage expenses between paychecks. Payday loans are best suited for any unforeseen and emergency expenditures such as non-priority bills, auto repair bills, overdrafts, and medical expenses, to name a few.
Each loan has distinctive approval and repayment conditions. A mortgage can be repaid over a few years, whereas, a college loan gives time to earn a degree and get employed before it comes due. Unlike these long-term financing options, payday loans offer fairly small funds that must be paid within a month. Since the entire approval process for payday loans is carried out online, it eliminates the need to visit a local bank branch to secure funds.
To cut a long story short, payday loans are
- Small loans with high-interest rates, for a shorter period, up to a month.
- Designed to be paid back swiftly by payday.
- Meant to be used for emergencies, not for living or fancy expenses.
- Inexpensive and may provide great relief, if used wisely.
Benefits of Payday Loans
In recent years, payday loans have surpassed other types of short-term loans by providing the following advantages:
With busy lifestyles, most people don’t have sufficient time to visit brick and mortar banks locations. One of the most encouraging things about payday loans is the ability to apply and receive the funds without visiting the lenders personally. All it requires is a computer or a Smartphone with internet access.
As the Consumer Financial Protection Bureau (CFPB) regulates the payday loan industry, a loan borrower is guaranteed on data security. With the introduction of CFPB’s stringent data protection guidelines, payday loan providers’ offer elevated security against data breaches.
Easy to apply
Unlike traditional loans that require a lot of paperwork, payday loans have plain, easy application processes that are easy to understand and complete.
No credit score or collateral requirements
Neither any kind of security nor a high credit score is required to secure a payday loan. As long as the borrower has a valid id proof and income proof, one can get the funds without any hassle.
In the past few years, the CFPB regulation has introduced stiff competition in the financial sector thereby making such payday loans more affordable now than ever before.
With the help of payday loan software, lenders, including NBFCs, offer loans in less than 5 minutes. Being fully automated, these loans are verified, approved, and disbursed within minutes.
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Recent Changes in the Payday Loan Industry
The payday loan industry has changed tremendously over the years. In a typical scenario, payday loans work in a way where lenders offer small funds to borrowers who promise to repay the loans by their next paycheck. According to a 2013 report by the CFPB, interest on these loans has an annual percentage rate of 390 plus percent. Another report from the following year showed that within two weeks, almost 80% of payday loans are rolled over into another loan. According to a study by Pew Research in 2016, more than 12 million Americans use payday loans each year that generate over $9 billion in revenue for lenders.
Earlier, the borrowers were unaware of how much their loan would cost them if they miss one or more payments. This lack of transparency let borrowers make an ill-informed decision, leading to the increased debt over time. To protect the most vulnerable borrowers from the ballooning debt that amasses with payday loans, in the year 2016 – under the presidency of Barack Obama – a rule had been proposed to crack down on so-called ‘predatory lending’. Under this rule, the lenders would be required to determine whether their customers could pay off the loans on time or not. It would also limit the payday lenders to a maximum of two attempts to withdraw money from their loan borrowers’ accounts.
However, under the Trump administration, the CFPB Director Mick Mulvaney has delayed the rule stating it would disqualify almost two-thirds of payday loans’ borrowers. The rule has also been rolled back due to the lack of enough evidence against unfair and abusive practices by the lenders. This recourse has, indeed, been welcomed by lenders around the world.
Payday Loan Software
In today’s world, not even a single day goes by without automation. From automatic espresso machine that gets your day started to automated teller machines disbursing cash to quality automobiles, automation is everywhere, and the loan processing industry is no different. Automation has created a positive impact on lenders and borrowers alike by accelerating all stages of the loan cycle. Indeed, in the current market of multiple loan providers, automated and digitized loan processing systems – payday loan software – are essential for lenders to remain competitive yet profitable.
Advantages of Using Cloud-based Loan Software
Based on cloud technology, payday loan software offers a plethora of benefits including:
The cloud-based payday loan software can be easily configured and implemented. Since the user can access the software instantly and securely via the web browser, it thereby eliminates the need to download it. This makes the software operate at a faster rate when compared to manual systems. Cloud technology also allows the users to access it from a remote location and enables them to fix, update, and add features to it.
Another advantage of using cloud-based loan management software is that the data is stored in a remote, centralized server making it easily accessible from any device, any location, and at any point in time. The cloud technology stores the data in an encrypted format thereby ensuring its security and integrity. To access the data, all you need is an internet connection and you’re good to go.
Accessibility and Consistency
Increased demand during peak periods may lead to the crash of the traditional loan management system due to several factors including process overload, power failure, and hardware failure, to name a few. Employing a cloud-based loan processing system could eliminate such potential issues. Since the data and other documents are stored in a centralized server which is backed by generators and failover clusters, their availability is assured 24 hours a day, 7 days a week.
All the documents are secured and stored in a remote, centralized server in an encrypted format. The cloud technology enables the real-time creation, storage, updating, and sharing of documents as well. This way, the entire loan management process is streamlined.
Improved Customer Experience
A manual loan processing system involves a lot of time and requires more staff, thereby making lenders charge a higher processing fee. The cloud-based system, on the other hand, completes the loan process in a shorter period by reducing overheads, eliminating paperwork, and operating at a much faster rate. One can improve customer experience by providing them with multiple services and ensuring minimal processing time.
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An Analytical Model Disbursing Loan in 5 Minutes
Using payday loan software, one can ensure smooth client onboarding process along with error-free documentation and integrated e-KYC verification. These features enable payday loan lenders to swiftly process the loan application, thereby approving and disbursing funds within 5 minutes.
Payday loans require borrowers to provide a valid id-proof. Verification of identity proof is a complex, time-consuming task. The software comes integrated with an e-KYC solution that completes the verification process within a matter of minutes. This way, you could save your customers from the hassles of lengthy paperwork and provide them with a smooth onboarding experience.
Smooth customer experience is the key to success in any consumer-centric industry. Since the whole loan application process is automated and digitized, you can ensure hassle-free, secure onboarding. The software also provides your representatives with the flexibility to immediately create a new loan account for active clients or groups.
The software’s database-driven documentation module dynamically stores and segregates commercial loan documents over the centralized server. This enables the automation of the workflow and expedites the decision-making process.
CloudBankin: A Leading Player in the Payday Loan Sector
Designed exclusively for a complete lending solution, CloudBankin is one of the best payday loan software trusted by the leading NBFCs around the world. Not only does the software provide the NBFCs with an accelerated, transparent loan processing experience, but it also empowers lenders to lessen the operational risks, strengthens the workflow with minimal manual intervention, and reduces discrepancies.
With the right technology platform in place, as a lender, you can stay on top of regulations, foster your customer relationships, and maintain a perfect balance between risk management and operational efficiency.