A government effort to crack down on payday loans has given new energy to installment loans, the Wall Street Journal reported today. Payday loans, which typically carry triple-digit annual percentage rates, are made against a person’s paycheck, usually for just a few hundred dollars for a few weeks. Installment loans often carry triple-digit rates, too, but have longer repayment periods, often from six months to more than a year, and may be for a few thousand dollars. The loans are paid a bit at a time, rather than in one balloon payment, as payday loans are. Both types of lending target borrowers with low credit scores who likely can’t get credit from traditional sources like banks. Payday loans, though, are believed by critics to be more onerous for borrowers, which has spurred regulatory action from the Consumer Financial Protection Bureau. So lenders have been switching gears. Lenders extended nearly $24.2 billion in installment loans to borrowers with credit scores of 660 or less in 2015. That was up 78 percent from the prior year and nearly triple the amount in 2012, based on loan data submitted by mostly nonbank lenders to credit-reporting firm Experian.
