It’s no secret that high-cost lending is becoming a problem for a lot of people. High-cost lending options are used by over 3 million people in the UK and 12 million people in the US each year, but interest rates of 1,000% APR are making them affordable and unsustainable.
There are other methods of lending but these aren’t always accessible to people or a viable option. One of the best options for people looking to borrow money is to use credit unions. However, they aren’t always an option as they can be very slow and inaccessible to some. On top of this, lending with credit unions is sometimes capped at small amounts, so wouldn’t be suitable for people needing to borrow large sums of money.
To tackle this, many entrepreneurs have started to work on startups such as salary finance and buy now pay later. Both these types of startups can help to eliminate the need for high-cost lending.
Salary finance allows employees to draw down money from their existing wages. It’s a direct way for employers to provide their employees with financial assistance.
Salary finance products can vary, but they all build on this principle. Common types of salary finance include schemes and cash advances that enable employees to access funds before their pay date. Recently, salary finance has become an incredibly important employee benefit that organisation can offer their staff as part of an employee assistance programme.
For this to work, the software is integrated within the organisation which allows staff members to effectively take out the money they have earned to date, rather than waiting for their next payday. To illustrate, if an employee is paid monthly on the 28th, but needs to take out money on the 21st, the salary finance product allows them to take out 21 days worth of income. Any money that these employees have earned can be taken out at any point during the month.
This massively helps to reduce high-cost lending as employees have access to the money they’ve earned in real-time, without having to wait for payday and being caught short.
Buy Now Pay Later
Buy Now Pay Later (BNPL) is a kind of short-term financing that enables buyers to make purchases and then pay for them at a later date. There’s no interest attached to this form of financing, so it has become a largely popular choice for consumers.
BNPL is an agreement that allows you to buy goods on credit and pay for them at a later date. This could be through either regular interest-free pre-established installments, or a lump sum after an interest-free period.
The most popular BNPL providers include Klarna, Laybuy, and Clearpay. These providers all offer a range of payment options to suit the needs of each consumer.
Both these startup areas are massively helping to wean individuals off using high-cost credit which could leave them repaying for years. Whilst entrepreneurs in these fields are making strides, more Government support and help are needed.