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How Many People Use Payday Loans? Facts & Statistics

By June 22, 2022June 24th, 2022No Comments
How Many People Use Payday Loans? Facts & Statistics

What Percentage of People Take Out Payday Loans?

Payday loans are used by 12 million Americans each year, according to Credit Summit. There were around 14,300 payday loan outlets in the United States in 2017.

The average payday loan amount is $375, with typical borrowers earning $30,000 a year.

It’s also been revealed that more than half of payday loan borrowers (58%) struggle to meet their monthly costs, with just 14% being able to repay their debt.

These figures demonstrate the importance of just taking out loans you can repay. While you won’t go to jail for not repaying a payday loan, you’ll almost certainly face fines, including the following:

  • Fees for late payments.
  • Your credit score will be harmed.
  • Access to future financing and loans is a problem.
  • Borrowing could become more costly in the future.

What Is the Percentage of Repeat Payday Loans?

75% of payday loan customers have already utilized this kind of credit. Seven out of ten payday loan users take out loans for recurrent obligations, such as rent and other monthly payments, and 80 percent of payday loans are taken out just weeks after borrowers have completed repaying a prior payday loan.

Payday loans aren’t meant to be used regularly or for such a lengthy period. These loans should only be utilized for one-time needs, such as when your vehicle breaks down, and you need it mended before your next payment.

Before taking out any kind of loan, be sure the financial product you’re asking for is the most excellent fit for your financial position and that you receive the support you need if you have long-term financial problems.

What Are Payday Loans and How Do They Work?

Before looking at payday loan data, it’s essential to understand what payday loans are and how they vary from other types of short-term financing. A payday loan is intended to cover the borrower’s living costs from one paycheck to the next, making it a short-term loan.

Payday loans are generally between $500 and $1,000, depending on the borrower’s payment amount, and are meant to be returned from the borrower’s next salary, usually within two weeks. A payday loan does not need a credit check to be approved. Payday lenders, however, require proof of work, income, and true identity.

Payday loans are distinct from other short-term financings, such as credit card cash advances, due to the high costs and short payback duration. Borrowers who utilize a payday loan to meet unexpected needs pay more than they would if they used a longer-term installment loan or a credit card cash advance.

Who takes out a payday loan?

In the previous five years, around 6% of Americans have taken out a payday loan, although some categories are more likely to do so than others.

Borrowing is more common among younger, moderate-to-low-income people, with 72 percent of borrowers having a family income of less than $40,000 per year and 52 percent being between the ages of 25 and 44. However, a person’s chance of taking out a payday loan is influenced by several demographic characteristics, including:

  • Renters are 57 percent more likely than homeowners to utilize payday loans.
  • People who earn less than $40,000 a year are 62 percent more likely to take out a payday loan.
  • People without a college diploma are 82 percent more likely than those with one to take out a payday loan.
  • African Americans are 105 percent more likely than members of other races/ethnicities to take out payday loans.

What motivates individuals to take out loans?

Payday loans are designed to cover emergency or unexpected costs, and it’s best to avoid utilizing them for anything else if feasible. A payday loan to buy food or rent may seem like a good option if someone lives paycheck to paycheck and gets behind on expenses. Unfortunately, the costs associated with these loans are sometimes more than the loan itself, trapping debtors in a debt cycle.

On the other hand, Sixty-nine percent of payday loan borrowers utilize the money for monthly costs

Payday loans are often used to cover the following expenses:

  • Utilities
  • Payment for a car
  • Payment using credit card
  • Rent/mortgage
  • Food

What are the Alternatives?

Payday loans aren’t your only choice if you’re in a tight financial position and need money fast. Payday loans are notorious for starting a cycle of borrowing, and borrowers are often in over their heads due to high costs. Several alternatives to payday loans include poor credit loans, credit card cash advances, and personal installment loans.

There are fewer fees and more extended payback periods with these solutions. Credit card cash advances offer high APRs comparable to payday loans but enable the borrower to repay the debt over a more extended period.

While personal loan interest rates are higher for less eligible applicants, they are limited to roughly 36%, which is much lower than payday loan rates. Furthermore, compared to payday lenders, personal loan providers offer lower costs.

If you decide to take out a personal loan, do your homework on the most acceptable individual loan rates and poor credit loans available now.

What Are the Consequences?

Because of the hefty costs, a payday loan may only solve financial problems temporarily, with money problems resurfacing later. People who have utilized payday loans account for three-quarters of all payday loans. Additionally, 80 percent of payday loans taken out in the United States are taken out within two weeks after repaying a prior payday loan.

Where Can You Get a Payday Loan?

Payday lenders, most of whom are located in brick-and-mortar establishments around the United States, provide payday loans. According to the most current payday loan data, payday loan lenders are accessible in 36 states. However, the proportion of people who utilize them varies significantly by state. Some states have a 1% usage rate, while others have a prevalence of up to 14%.

The variance in rules and regulations governing payday loan operations among short-term lenders is part of the discrepancy in utilization among borrowers in different states. There are also several online payday loan lenders operating around the United States. On the other hand, online payday lenders are more prone to mislead clients regarding interest rates, borrowing expenses, and repayment terms, so be wary.

Here are some of the most common payday loan use rates and data in the most popular lending states:

  • Louisiana has a 10% loan use rate among people, with a borrowing maximum of $350.
  • Missouri citizens utilize loans at an 11 percent APR, with a $500 borrowing cap.
  • Oklahoma people use loans at a rate of 13%, with a maximum borrowing amount of $500.
  • Washington citizens utilize loans at an 11 percent APR, with a total credit limit of $700.

Payday Loan Trends to Be Aware Of

While payday loans are standard in the areas that provide them, they have several disadvantages that customers should be aware of. Borrowers frown upon payday loans due to the hefty fees and interest rates imposed. A single payday loan is far more expensive than options such as credit card cash advances or personal loans.

According to current payday loan data, borrowers are also more likely to roll over a payday loan rather than pay off the sum owing. To cover the payment for the previous loan, a rollover entails taking out a new loan with additional costs. This creates a terrible debt cycle for debtors who can’t afford it.

Here are some facts on payday loans that show these issues:

  • The typical payday loan costs $520 in fees for a $375 loan.
  • The average cost charged by a payday lender for a two-week loan is $55.
  • The typical payday loan needs a $430 payment from the following paycheck, equivalent to 36% of the borrower’s gross salary.
  • Almost 80% of payday loans are taken out within two weeks of a prior payday loan being paid off.
  • 75% of payday loans are taken out by people who have used a payday loan in the preceding year.

Bottom Line

Payday loans may benefit folks dealing with unforeseen needs or falling behind on their regular bills. Payday lenders provide loans to those who could not get credit elsewhere. Take out one payday loan, which leads to others, trapping consumers in a debt cycle.

If you’re contemplating a payday loan, be sure you’re familiar with your state’s payday lending laws and that you’re obtaining the best APR you can in your region. Payday scams should also be avoided since lenders in certain areas may take advantage of borrowers due to a lack of regulation. If you qualify, a personal loan or a credit card cash advance is a safer and less expensive choice.

Luke Pitt