With the FCA’s control over the loan industry now one year old and the assessment of applications for full permission having commenced, Uncle Buck Finance LLP looks forward to the shape of short term lending in the future.

There are likely to be fewer lenders. Already a number of lenders have left the market, both on the high street and on line. Others whose application slot ended on 28 February 2015 have chosen not to apply for full permission and accordingly, their interim permission has now ceased. Whilst it might be argued that more lenders means more choice, the implementation of the price cap on 2 January 2015 may have gone some way to stifling innovation by laying down the parameters within which lenders must design their products.

Prices may tend to the cap, which has been set at a level that makes very short term loans unappealing to lenders, especially where acquisition of customers in not organic. That said, there is scope for variation.

Increase in instalment products

Products are likely to move away from the traditional single repayment payday product and already the market is seeing more in the way of short term instalment loan products that offer multi instalment repayments, whether of equal amounts or calculated to reduce over the term of the loan. Customers always have a legal right to settle early and so there is an implicit “single repayment” loan in any of these products. Spreading repayments over say 3 months does not commit the customer to be tied in to a long term repayment term but can help to increase manageability of repayments, which may in term assist customers in getting their finances back on track.

Finally, the products available may become more attractive to customers of a higher credit quality, particularly now the price cap is in force. Small sum short term finance can be a useful option for some to consider alongside other forms of borrowing, although any borrowing should not be considered lightly and the risks and benefits weighed up before a decision is made.