Check cashing stores were the first businesses to offer loans that we now refer to as Payday Loans. The first real businesses to offer payday loans were check cashing stores trying to broaden their financial product range and to diversify their offers and risk. These check cashing businesses started in the early 1920s when it became more common by many companies to pay their employees by check. Reason for that was a reduction in cost and a lower risk of being robbed.
This worked fairly well until the financial crisis broke back in 1929. Up until then some banks were not interested in encouraging lower income people to become customers and so those employees with no checking account turned to check cashing businesses. Also, when the recession started many people lacked confidence in the banks during that era and (again) turned to businesses that cashed checks in exchange for a small fee. This “protected” the employees from the risk of losing the paycheck to a bad bank or fraudulent lender. Cash Loan Businesses became very popular accordingly, particularly in inner city and other deprived, mainly industrial areas.
The Payday loan providers you find today are a direct result of what happened back in the 1920s and 1930s. However, today many payday loans are more a tool of providing quick cash in advance to cover emergency situations where cash is needed and no other way of short-term financing is available. Also, if you are interested in a UK Payday Loan, please note that there are significant differences between the 2 countries.
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