Cash Converters online lending grows rapidly, but at a price

There is always a risk when you’re offering no credit check loans that you will be stung to a certain degree. The very nature of lending money to an individual who has the ability to pay back a short term loan but has a history of not doing so puts the financer in a position of threat from the outset.

And Cash Converters have seen the evidence first hand since they accepted the gauntlet of competing with other payday loan companies by setting up their very own online loan facility. However, the growth of its bad debt sector is fortunately overshadowed by the massive leaps forward they have made this year in its lending to customers who are actively improving their credit rating by making their repayments on time.

Back in December 2010 their loan book showed outstanding balances of £2.3M. According to figures just released, move that same balance sheet on twelve months and it has swelled beyond all expectations, now showing debts of £8.5M. Considering that they are, in essence, a pawnbroker, that’s a massive hike in business – in anyone’s books.

The growth has not all come from the quick cash advance online loan facility, though. Much has come from punters cashing in their assets through the doors of its 208 High Street stores. And it is real growth, not just increased volume from an existing customer base.

Of those applying for a instant cash loan on their website, launched only in October of 2010, only 4% were recognised users – the other 96% of applicants were brand new customers. This is reflective of the short term loans market as a whole, where no credit check loans have been a godsend for those families – 70% according to one recent study – struggling to make ends meet.

Irrespective of the overall growth, that figure could be a whole lot better if Cash Converters could eradicate the niggling 11% of borrowers who have defaulted on their repayments, a figure that has risen more than 20% in the last six months of 2011.

They are, however, addressing that situation to try and bring that 11% down to a more manageable figure. Companies can insure against bad debt, but the cost of cover when the conditions are so relaxed is steep, especially when the amount is as high as the report suggests. In order to cut down that risk, this year will see more selective processes for those who they lend money to, refining their existing customer base and employing collections managers whose sole purpose will be to come to an agreement to retrieve the money that is showing as outstanding for the current instant cash loan book and any future defaults.

As organisations such as Cash Converter realise gains in the market that are far greater than they anticipated, they position themselves to be able to choose their risk. If other companies follow suit, we could soon be seeing the beginning of the end for the no credit check loan. Where will seven out of ten families go then, to put food on the table?

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