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The History of Payday loans

Most people know short term loans as loans that tide you over until you get your next paycheck. But this form of lending didn’t become too common until the 1980s. Ever wonder how short term loans came to be? We’ve got the lowdown on how short term loans got their start in the U.S. and where they’re headed in the future.

Origins of Short Term Loans
The very first version of a short term loan came in the form of salary lenders in the 1800s. Though illegal at the time, small lenders would offer short-term loans to individuals who were likely to repay the debt — people with jobs who just hit a financial rough patch.

If the borrower had trouble making payments, the salary lender often threatened to take them to court, even though this was impossible because the loan wasn’t even legal. Lenders also resorted to public shaming borrowers because taking on a personal loan at that time carried a social stigma with it.

They might let it slip to the person’s employer, and they were then very likely to lose their jobs.

Evolving Short term Loans
Since then, short term loans have become a more accepted presence in our society. In the 1980s, the government deregulated a number of private industries, including financial institutions. This made it easier for banks to charge high interest rate loans to consumers. Now, however, individual states have the final say in regulating short term lenders.

They have the ability to:

  • Place caps on how much money can be borrowed
  • Determine how long the loan term may last
  • Have the final say on what types of fees may be charged

The Future of Short term Loans
While short term loans became popular through brick and mortar stores, many continue to move onto the online marketplace. This makes it easier for people to access quick cash outside normal business hours. However, as online loan options expands, people may also find that they are eligible for personal loans beyond short term loans.

Peer to peer and crowdfunding platforms are beginning to compete with all types of lenders for borrowers from all types of risk backgrounds. Even people with bad credit or no credit are beginning to become prime candidates for online personal loans because of the higher yields for investors.

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Grace Chen
Grace Chen - Writer & Editor
A graduate of the Haas School of Business, University of California, which is one of the top three (3) business schools in the U.S., Grace Chen has 10 years of experience in this field and have been delivering stellar business content through her written word. She’s the chief editor of Communicate Better and has written and edited thousands of content published in various online and printed media, including the NYSE-sponsored research studies and MEC Global. Connect with Grace on LinkedIn, https://www.linkedin.com/in/grace-chen-9254ab8/

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