For most of us, pay day and other forms of short term loans are a new way of financial means. However, the concept of such loans dates back to the 5th century when the “Hawala” concept came into play. The money was given from a lender to a borrower based on mutual trust rather than the credit ratings as we do it now.
The Hawala system was a very quick and efficient way to end the financial crisis. Middlemen were involved to act as brokers who would be responsible for managing cash transactions. It was a 4-way transaction involving four parties in the entire loop of transaction.
The process has been simplified and involves only 2 parties now namely the lender and the borrower. However, the transactions are not based on trust, but on thorough checking of the borrower’s financial history and background verification.
Payday loans are essential for managing emergency cash requirements. You can apply for all types of Short Term and Payday Loans on LoanPig and get quick disbursals to manage your cash crunch. They are a regulated body of lenders that assures that all the cash transactions are legal and safe. This also ensures that there will be no cases of fraudulent schemes involved in the process of loan application.
Evolution of payday loans
- The concept of brokers involved in the cash transactions started with Hawala somewhere around 500 AD.
- Hawala and the modern payday loan both have a very striking similarity; the ability to provide fast cash access to anyone in need.
- 10th century temples had their own way of lending and borrowing valuables.
- Wealthy people would store their gold ornaments in temples to avoid the risks of thefts.
- Priests of the temples also acted as middlemen to render loan to anyone in need.
- Banks were only available to the richer section of the society back in the 1920’s.
- You would have had to show your creditworthiness to get a bank account opened in those days.
- Getting a loan was an almost impossible task for the middle and poor sections of the society.
- Pawnbrokers were the only way these people could get financial help till 1950.
- The money was usually given in exchange for precious jewellery.
- These loan structures were also short terms and involved smaller amounts and high interest rates, very similar to the modern payday loan.
- Cheque cashing system became popular in the 1970s.
- You would get a loan amount sanctioned in exchange for a post-date cheque. They would deduct interest charges and service fees at the time of cash disbursal.
- Banking system eased out for normal people in the 1980s.
- Loans and mortgages also became available to the general public providing them an opportunity to grow and clear their debts.
- The modern payday loans finally came into existence in the 1990s and somewhere got refined in the 2000s.
To this date, thousands of people apply for payday loans every day. Most of them are able to use these short term cash advances to free themselves from some form of debts. There are some who get trapped in the loan trap, if they are unable to make the repayment on time, and opt for payday loans.