What is a payday loan and how does it impact the automotive industry?
January 20, 2023
In the last several years, there has been a lot of discussion about what is a payday loan and its impact on the automotive industry. In fact, some dealerships have even gotten involved in helping people learn about payday loans and how they can avoid them.
If you’re in the automotive industry, chances are that you’ve heard of payday loans. What are they, and why should a business owner or manager care? In this post, we’ll explore what exactly a payday loan is and how it impacts the market for used cars.
What is a Payday Loan?
Payday loans are short-term, small-dollar loans that borrowers use to cover emergency expenses. These loans are typically provided through a network of local lenders or online and can be used for any purpose.
How do payday loans work?
In order to get one, the borrower needs to be employed and have a steady income and checking account. These loans are often used by people with lower or irregular incomes such as:
People who are unemployed and looking for work, or who have lost their jobs
Those who have poor credit scores due to past financial mismanagement
Payday lenders acknowledge that payday loans create a cycle of debt for borrowers. However, they say this is necessary because the demand is so great.
To take out a payday loan, the borrower must pay a fee in accordance with the percentage of the loan. Payday borrowers are expected to repay their loan in full within two weeks of receiving the money. If they can’t, they typically fall into a cycle of withdrawing cash from their accounts or taking out another loan to renew this for another two weeks.
The average payday borrower uses the service four times per year at a cost of nearly $700 each time—a total expense of $3,600 per year on average for those who are stuck in that cycle.
How do Payday Loans Impact the Automotive Industry?
The automotive industry is a major player in the payday loan industry. In fact, it has been estimated that as much as 13% of all loans issued by auto dealers go to pay off past-due payments.
As you can see, these loans help people maintain vehicles and keep them longer than they might otherwise be able to. They also help people refinance their current vehicle or pay off their current loan early so they don’t have to drive around with a car payment for the next few years (or more).
A better understanding of the trends in the automotive industry can help you make more informed business decisions. When searching for a vehicle or looking to refinance a current one, some of the most common questions that these customers ask are:
How to Get a Car Loan
How to Buy a Car Without a Credit Check
How to Buy a Car with Bad Credit
What is a Good Credit Score?
How to Get a Car Loan with Bad Credit
Payday loans are commonly associated with automotive dealerships because that’s where many people get them. When a car breaks down, you may be faced with the choice of either paying for repairs out of pocket or taking out a payday loan to cover costs.
Vehicles are also often used as collateral for a credit card and pay off your credit card balance with the funds from the payday loan, but this can cause damage to credit scores if it’s not paid off within 30 days.
Payday loans are often used to pay for car insurance premiums, registration fees and title transfers (if you’re buying or selling). These transactions typically happen at an office dedicated solely to providing short-term lending services like payday loans.
There has been an effort by auto dealers to educate their customers about the dangers of payday lending, but it may not be enough because many people still feel like they have no other options.
Auto dealers are trying to educate their customers about the harmful nature of payday loans and how they can help them purchase a car in a cheaper, more responsible way.
What are the Alternatives to Payday Loans?
Credit unions offer more affordable lending options than payday lenders and provide valuable financial services, such as free checking accounts and savings accounts. Borrowers may also find it useful to investigate alternative bill payment plans or negotiate for reduced monthly payments on high-interest credit card debts. Credit card cash advances can also be an option if you pay off the balance in full within 30 days of receiving the funds so as not to incur additional interest charges.
If a customer defaults on a payday loan, then the lender will repossess whatever asset was used as collateral to pay off the loan. Repossession is the process of taking possession of collateral from a borrower who fails to repay a loan. Repossessions are usually carried out by the lender or a third-party repossession service. In some cases, however, borrowers may be able to avoid repossession by negotiating with lenders and convincing them not to take possession of assets used as collateral for their loans.
Get Maximum ROI From Your Marketing Budget
The automotive industry employs millions of people and generates billions of dollars in revenue each year. In order to make better decisions about how you invest for the highest ROI, it’s important to understand how this market works. Understanding what a payday loan is and how it impacts the automobile industry will help you decide if it’s right for your business needs!
At Accumulate, we want you to generate the most leads possible with your marketing budget. Contact us today to get started on a unique tailored campaign for you.