Payday loans are a great way to help your customers make ends meet during a difficult financial situation.
By offering them a safe and convenient way to borrow money, you can build trust with your customers while also helping them improve their credit score. Here’s how:
One of the main reasons people take out payday loans is to make ends meet during a period of financial difficulty, like a recession.
These borrowers often need help with their credit scores so they can qualify for other types of loans. By offering your customers a way to improve their credit score, you can help them find other sources of cash that they may need in the future. This will not only keep them coming back for more payday loans but also earn your business additional income from other lending products.
Payday loan customers also benefit from having higher credit scores. A higher credit score can mean lower interest rates, better loan terms and more opportunities for borrowing.
While you might think that’s a quick way to get customers to stop borrowing from you, you’re not seeing the business opportunity. You can easily offer larger, more targeted loans to your current customers.
Think of it like an upgrade. They start with payday loans to increase their credit score, then they get a mortgage loan from you or a car loan. You’re still the source, as long as you offer it.
Regardless of why they’re having trouble keeping up with their bills, it is important that customers who take out payday loans also take steps to keep their credit score as high as possible.
A high credit score can make the difference between getting approved for a loan and not even being considered. Having a good FICO score can mean saving thousands of dollars in interest. A bad one could potentially prevent you from getting approved at all, regardless of your financial situation.
Credit scores are calculated by looking at several factors:
- payment history (how often and on time payments have been made),
- amount owed (how much debt you have compared to how much money you earn),
- length of credit history (how long have you had accounts open),
- and new credit activity (opening new accounts).
If any one element falls below the threshold set by the company that issued your report – whether it be Experian or Equifax – their score will go down accordingly.
Payday loans helps build credit, which customers value during economic hardship.
Payday lenders should be in the business of helping their customers build credit.
The loan process itself is similar to a credit card application, and most payday loans will report to all three major credit bureaus: Experian, TransUnion, and Equifax.
If you’re looking for a way to help your customers improve their financial situation during an economic hardship, give them a chance to build their credit score while they pay off that loan.
Payday loans get a bad rap. They’re often associated with enormous fees, impossibly high interest rates, and generally sleazy terms that perpetuate a cycle of debt. But that doesn’t have to be true. If you’re in the business of lending money, you do so while helping your customers. Taking the right approach will make all the difference.
Establishing good credit requires having accounts in good standing, and your payday loan customers are no different.
Building credit is an important step in securing loans and achieving financial independence. This is why it’s critical that you help your payday loan customers understand how they can maintain a good credit score, so that they can establish a track record of establishing accounts in good standing.
Here are some ways to make that happen.
Customers who pay on time deserve some praise. But not everyone can remember their due dates. Offer automatic monthly payments so your customers pay off their debt fast and easy without dealing with late payments.
You can offer deferment or extension if customers need it (with terms that actually help them pay it all off).
Aside from that you, you can offer money management tools. Allow your customers to see how much they’ve borrowed in total, how much they’ve paid (including interest), and how their credit rating has improved.
Prepaid Debit Cards
Certain customers are more trustworthy than others. As they build up confidence in their finances, you can start offering them prepaid loan cards. This can help them stay within their budget and more easily reload it every month as they need.
Credit Monitoring Tools
There are tons of credit builder tools online. Partner up with one of them or offer a simple credit check graph so your customers can see how borrowing from you has positively affected their credit report.
Offer More Than Payday Loans
Customers that do well will eventually grow out of their need for payday loans. That’s your opportunity to step it up and offer them something greater.
Mortgage loans, car loans, personal loans, whatever they might need. Even student loans (as a private online lender). There are ways to keep them under your umbrella.
Educate your customers on the importance of building good credit.
You can do this my limiting the number of accounts they have open. In other words, help them close some accounts that aren’t benefiting them.
Limiting what types of accounts they have all but guarantees that they will be able to handle making consistent payments on time.
This can be hard for some customers who are used to accumulating debt but if they keep their eyes on the long-term goal of improving their score, it will encourage them to choose wisely when opening new accounts.
Most payday loan customers have bad credit and are looking for a quick cash advance. Educating them on the importance of having only one or two open accounts is incredibly important. Having multiple accounts in good standing will increase their credit score, as long as they make payments on time every month and keep the balance low.
A bad debt from four years ago may be removed from their record after seven years but it can still impact how current financial service lenders see them based on where the last payment was made. So even if your customer has paid off all of their other debts, this should not be something you ignore.
When people are building up their credit history, they may want to add more than one account because they don’t have enough money saved up yet for all of these payments at once. However, doing so could actually have negative effects on building up good credit as well because it makes financial institutions think that they are unable to manage money properly because there are too many open accounts at once (which isn’t true).
By limiting what types of accounts they have all but guarantees that they will be able to handle making consistent payments on time.
Offering quality repayment plans with affordable rates helps customers manage their debt, build credit, and trust your business.
Promoting repayment plans that are affordable and tailored to your customer’s needs shows customers you care about them. This will help them to pay back the loan on time, which will also help them get better interest rates on future loans.
What you need to understand first is that payday loan recipients live paycheck to paycheck most of the time. They need some cash to carry them through to the next paycheck, but that’s not a good reason to take advantage of them. It is a good reason, however, to help them. Small loan amounts with short-term loan payment plans and good terms (like no penalty for non-sufficient funds or zero late fees) is better for you both in the long run.
The last thing you want is loaning money, sending the debt off to a collections agency, and losing the payment.
If you offer payment plans that are affordable for your customers and give them more flexibility with making payments — for example, by allowing partial payments on installment loans or setting up automatic withdrawals — then it may lead to an increase in sales and profitability overall.
Payday Lenders are high-risk. Accepting your customer’s payments can be tough…unless you do this:
Payday lenders are high-risk. Accepting your customer’s payments can be tough, especially if they don’t have much income. And since the industry is highly regulated (and often vilified), it can be difficult to find a payment processor that will work with you and your customers.
That’s why we, here at DirectPayNet, work directly with high-risk payment processors that support your business. You can all the credit card, ACH, and bank account transfer processing power you need from day 1.