The lending market today is diverse and on its way to becoming a lucrative business like just a few other. Along with that, the industry is also gaining maturity, making it safer by the day. Yes, there are flaws in every real-world scenario and the lending market is no exception. Nonetheless, few would argue that the lending environment today is at its safest yet.
That said, there is one seemingly less safe variety of loans that are gaining momentum now, like never before. While some critics argue that these are designed to be safe but in just a non-traditional way, the vast majority do not have this opinion. This article is about what are known as unsecured personal loans – loans which can be taken for unspecified reasons, with no collateral being jeopardized as a guarantee of repayment.
Most Popular Unsecured Loans – Payday Loans & Cash Advances
Unsecured personal loans come in various forms: payday loans, short term installment loans, emergency loans, some credit card loans and many other loans which may have similar concepts as one or more of these, would all would all belong to this class of loans. Typically, in the US, non-bank direct lenders offer such loans because such entities are not authorized to seize any assets of borrowers in the event of non-payment of loan dues by a borrower.
Amongst the most popular loan products amongst these all, is the payday loan or cash advance loan. These loans are very short-term loans of small amounts, which can be applied for online or through some brokers and pawn shop lenders. Online services are facing a strong surge in demand due to convenience and easier verifiability of their services. An example of such a loan providing service is EzPaydayCash – a renowned direct lender dealing in online cash advances only.
Risks Involved
Any loan taken has its risks involved for both parties (borrower and lender), much like perhaps any other business deal also does. However, unsecured personal loans are considered by many, as the ones with the highest risk. A higher risk in lending calls for a higher return where the demand can permit, and being in demand, such loans tend to be amongst the most expensive lending products across the market.
Here we list few of the main risks involved for both the borrower and the lender, with specific reference to unsecured personal loans.
Risks for the Borrower
- Many such loans overlook credit history, which can mean loans given out without verifying the borrowers repayment ability thoroughly
- Loans seems more attractive and resistance factor reduces, which may lead to temptation
- These loans are very expensive and non-repayment penalties are usually higher than other loans
- Sometimes the borrower unknowingly deals with an unregistered, unauthorized lender and could be a victim of fraud
Risks for the Lender
- With no rights to seize assets, the only way for a lender to retrieve money for an unpaid loan, is via a court case
- Offering such loans with high interest seems like a lucrative business but recovering money is not always simple and straightforward
- Critics are frequently voicing strongly against such loans
What is Making These Loans More Popular?
The risks mentioned above are significant and real. Despite these risks and few other minor risks, unsecured personal loans continue to see growing demand and supply in many countries across the globe.
Having reflected upon the main risks, now we reflect upon the main factors that play a significant role in the growth of unsecured personal loans.
1. Safety of the Borrower’s Assets
For most borrowers in the modern market, it is virtually impossible to pledge an asset of value – many borrowers of loans are either fairly new at their job or just starting off getting settled and may not have possess dispensable valuables. To add to that, the feeling of being secured while transacting for a loan is also found essential in multiple surveys. These factors simply indicate that a lot of borrowers prefer and/or require safety of their assets, enough to allow them to choose a more expensive unsecured personal loan over one with a collateral at stake.
2. False Criticism is Also Publicity
Some critics make valid points and raise valid opinions of concern related to unsecured loans. However, there exist many whose arguments either seem false or are proven false. Nonetheless, there is undoubtedly a lot of criticism and a whole lot of false criticism. This does lead to publicity and as they say, sometimes, no publicity is bad publicity!
3. Limit to APR
Perhaps one of the best moves in the recent years by most state governments with reference to payday loans and some other unsecured loans, was to cap the APR that can be charged by any lender for such loans. This regulation has prevented usury, enabling borrowers to feel safer. This in turn has benefited the entire market and helped it strengthen further.
4. Other Consumer-Friendly Jurisdictions
Time and again, various governing and regulating entities review, revise and add regulations and acts aimed to make the lending market safer for both borrowers and lenders. A lot of focus off late, has been seen on payday loans as well as other forms of unsecured personal loans. Reforms and regulations have impacted the loans process, reduced advertising malpractices, cleaned up unauthorized clone firms, and eliminated aggressive collection processes and so on. While it cannot be said that the industry is now all clean and fully safe, great progress has been made and is continued to be made with each year that passes by. This again makes both the borrowers and lenders feel safer, making it a more viable business in the longer run.
5. Profitability of the Industry
No industry can flourish and sustain without profits. Any direct lender looking to enter the market offering unsecured personal loans is choosing to take a risk, which is worthwhile only when there is profitability in it. Operating figures of most lending companies tend to reveal a decent profitability despite the heavy risks involved and despite bad debts too. This not only allows the lenders to progress and grow but also attracts more lenders to offer such loans, which in turn adds to their popularity over time.
6. Popularity of Payday Loans & Cash Advances
Most of the recent growth of unsecured personal loans can be credited to payday loans and cash advances offered by direct lenders. While these are the products that are often the target to the maximum amount of feedback criticism too, millions of people each year utilize such loans for a wide variety of applications due to the ease and quickness of these loan services that is growing due to immense competition and demand.
Conclusion
Unsecured personal loans like payday loans and cash advances, despite being higher on risk for both borrowers and lenders, come with certain advantages, that can be said to outweigh the resistance that the risk factors may cause and this is reflected well in their steady growth of both demand and supply in the recent years. To add to this, constant attention from critics and the government has led to the market becoming cleaner and safer for the borrowers and the lenders.
Given all these factors, it is easy to see why unsecured personal loans are gaining popularity and also it is quite safe to assume that this trend shall continue for now. A trusted lender of such loans is EzPaydayCash and their reputation as a direct lender of guaranteed payday loans is a reflection of what makes the most popular form of these loans, most attractive to borrowers.