Payday Loan Growth In Oregon 2022: Evidence From Financial Statistics
The number of clients is increasing against the backdrop of non-growing incomes of the population. By June, 11.9 million citizens received loans from microfinance institutions, 2.26 million more than in January. In the first half of the year, they borrowed over 3 billion dollars from microfinance organizations. The microfinance market is growing many times faster than retail banking.
Oregon residents have become more interested in payday loans
The demand for online loans in Oregon has increased among OR residents. In the first half of 2022, the number of applications increased 1,5 times compared to the same period last year.
The ten largest organizations have already reported an increase in applications for payday loans. In late February and early March, the demand for loans increased by 50% compared to last year. Compared to previous weeks, the number of requests increased by 8% all across Oregon. This was stated by Statista. During this time, the number and volume of loans also increased by 1.5 times compared to 2021, and the average amount increased by 12%, reaching $560, according to the online portal.
“Now many people take out a payday loan to quickly buy goods or services for fear that they will rise in price. For example, a 1.5-fold increase in the share of short-term loans for the purchase of spare parts and car repairs was recorded in just a week,” Statista experts reported.
According to the head of FT Partners, the increased demand for payday loans in Oregon is associated with the uncertainty of the situation and the need for large purchases in the face of rising prices for food and equipment.
According to the experts, the increase in the key rate has made new borrowings inaccessible for a significant part of Americans. This led to the growth of the microfinance market, where the requirements for borrowers are more loyal. However, clients are often biased in assessing their capabilities and forget that payday loans can be very expensive.
According to experts, those who fail to service their debts amid high inflation and a surge in unemployment will harm themselves and the microfinance market: “On the one hand, people will close their access to legal creditors, and on the other hand, they will push organizations that do not have reserves and margin of safety, as banks leave the market.”
For many organizations, it may be fatal to reduce the maximum rate on loans, now this measure is being considered at the legislative level. And the withdrawal of companies from the microfinance market will have a negative impact on the availability of easy loans.
How payday lenders have extended their client base
The influx of borrowers is due to the fact that the population still needs such funds due to the lack of income growth, as reported by Statista experts. According to them, both new and repeat clients contact microfinance institutions.
The growth rate of applications from new borrowers is about 50% faster than the rate of applications from repeated borrowers. Analysts connect this with the situation in the economy – the growth of industrial production and the simultaneous acceleration of inflation. People have both a growing need for money and positive expectations of their future income.
Many microfinance institutions in Oregon record an increase in applications from clients who have not previously applied for loans. “We rather see a trend towards an increase in the share of new customers with no credit history, that is, those who have not previously used either banking products or payday loans. In part, these may also be potential bank customers who have lost access to credit funds due to tougher scoring rules and bad credit history,” they said.
In the first quarter of 2022, the growth of the portfolio was provided mainly by new borrowers, and in the second the demand structure changed and more loans were received by existing clients. This can be attributed, among other things, to the developments of market participants: during the pandemic, microfinance institutions improved customer retention mechanisms.
“Market participants significantly “twisted” the quality of their product”, Statista agreed. According to their experts, new clients can often take the first loan at 0 interest, and the company can offer bonuses to repeated ones.
Bank of America previously pointed to an increase in the share of Oregon residents who apply for payday loans already having overdue bank loans. As of June 1, 2022, they accounted for 14.8% of clients of microfinance companies – this is the maximum since 2018.
The flow of clients from banks to microfinance companies is considered moderate by market participants. In most microfinance institutions, the share of “bank” borrowers is now about 10% of the total. These are both clients with overdue loans and those who are attracted by the technological service of microfinance companies. At the beginning of 2021, about 5% of the total number of payday loan users, one way or another, were simultaneously clients of banks, that is, they had loans that had not yet been repaid in banks, but now their share is systematically decreasing.
How the payday loan growth affects the quality of the portfolio
According to statistics, in the first quarter of 2022, the share of delinquency in the portfolio of microfinance companies slightly decreased compared to the level of the end of last year, to 28.6%. In April-June, arrears decreased significantly, both in absolute and relative terms.
The decrease in the share of overdue debts may be due to the fact that bad debts are being eroded against the background of the accelerated growth of the portfolio, but the quality of loans does not fall. This is a direct consequence of the revision of the credit policy by market participants and the gradual recovery of economic activity in general.
The dynamics of delinquency are contradictory, as reposted by Statists experts: “On the one hand, some clients began to take smaller loans for a shorter period and at the same time demonstrate high payment discipline. On the other hand, there is a group of clients that take large loans for a long time, but the cycle of repayment in this category has not yet been completed.”
The situation in the microfinance market is in many ways similar to that observed in the unsecured lending segment: the growth in disbursements significantly outpaces the increase in real incomes of the Oregon population. The trend leads to an increase in the debt burden of borrowers and is fraught with an increase in overdue debts and the share of problem loans, which could ultimately have a negative impact on both the banking sector and the microfinance sector. Experts believe that the government will decide to tighten the requirements for the microfinance sector as well.
Unlike the banking market, the dynamics of the share of overdue payday loans is not indicative, experts believe. “Many market participants initially put into the model a certain proportion of loans that will be overdue, while not rushing the client to repay debts, earning on interest and penalties,” they explain.
Category: General | Tags: finance, money, Oregon, payday loans