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Payday Loans

What Does A Typical American Payday Borrower Look Like?

By May 24, 2022July 1st, 2022No Comments
American Payday Borrower Look Like

What Does A Typical American Payday Borrower Look Like?

While proponents of payday loans argue that they provide lending access to persons with little or no credit, detractors argue that these “short term” loans disproportionately target minorities and trap them in long debt cycles.

What are payday loans? This breakdown will help you understand. This page explains what a payday loan is, how to qualify, state-by-state distinctions, advantages and downsides, and responsible alternatives to payday lending.

Americans utilize payday loans. Lenders target vulnerable community members.

Survey nationwide

Pew Safe Small-Dollar Loans Research Project examines payday loan borrowers in the U.S. Non-college graduates, renters, African Americans, low-income earners, and divorcees are most likely to have a payday loan, according to a national poll.

A typical payday lender

1. Low-income individuals

Payday loan debtors average $30,000 per year.

Renters are more likely to utilize payday loans than homeowners, according to the CFPB. 58% of payday loan users rent, and 10% of all renters do.

Payday lenders target low-income families.

Low-income families can’t offer collateral for low-interest loans. Only high-interest loans like payday loans remain.

Payday lenders target the young and disadvantaged.

2. Age range: 18-24 years

Young people are increasingly using payday loans. Millennials and Gen-Xers utilize payday loans to address unforeseen costs. Most borrowers are 18-24.

Young Americans face greater economic volatility than earlier generations. Student debts and low wages cause financial hardship.

With Millenials, it’s 51%. Young people are increasingly turning to payday loans to make ends meet. Payday loans won’t alleviate financial issues but will likely keep debtors in debt. Read Why Are Young People Facing a Debt Crisis? to learn more.

3. Consistent borrowers

Most payday loan customers are repeat borrowers. The average borrower is in debt for five months.

Reborrowing might create a high-fee debt cycle that harms your finances. If you don’t pay back your loan, it might damage your credit. Read our advice on payday loan dangers.

How do payday loans work?

Payday loan customers may quickly get this short-term loan. A borrower requires a decent checking account, income, and identity. Payday lenders don’t verify credit or ask for inquiries. Many customers get into a payday loan trap because lenders don’t examine their credit.

Pros and Cons


Despite the unfavorable repercussions, some individuals resort to payday loans.

1. They’re accessible

Payday loans are simple to get. Many cash advance businesses claim 24-hour cash and an instant loan decision. Some offer online applications and are open 24/7.

Unlike typical loans, they may be applied for under five minutes.

2. Fewer restrictions than other loans

Traditional lenders need an SSN, picture ID, proof of income, a credit check, and repayment capacity. “Fast cash” loans offer fewer conditions than traditional personal loans.

To get a payday loan, you must

  • 18-year-old minimum
  • Have ID or SSN
  • Regular income or job
  • Actively bank

Having fewer conditions makes acquiring cash easier, but banks and other lenders have them to protect you.

3. No credit checks

Payday loans don’t need strong credit, unlike traditional loans. No complex credit query lowers your score since they don’t pull your credit.

Payday loans won’t help you develop credit for better financial products, except in exceptional situations.

How to Build (or Rebuild) Credit?

4. It’s an unsecured loan.

Payday loans aren’t backed by property like vehicle titles, auto loans, or mortgages. The lender can’t confiscate your property if you fail.

Non-secured payday loans sometimes need access to your bank account, which is dangerous. They may also send the debt to collections or sue over unpaid bills.


The Federal Trade Commission, which prevents fraudulent, misleading, and unfair commercial activities, says about payday loans:

Try to avoid payday loans. If you must, use fewer. Borrow just what you can pay with your next salary and still survive.”

1. Payday loans are expensive.

State-by-state, payday loans average 400% APR. Personal loans carry 4-36% interest, while credit card interest is 12-30%.

Traditional lenders need a minimum credit score. Better credit means higher long-term savings.

Payday loans might be challenging to repay since the lender didn’t check your repayment capacity. Payday lenders don’t consider your debt-to-income ratio or other obligations before lending.

2. Payday loans are predatory.

Unfair, deceptive, or exorbitant conditions may trap borrowers in a debt cycle. Due to their excessive charges, payday loans are considered exploitative.

The lender doesn’t verify your creditworthiness. If you can’t return the debt, you may have to roll it over again, incurring further expenses.

The loan won’t develop credit. Not reporting to Experian, Equifax, or TransUnion might be a red flag. Ask whether a loan report to credit bureaus.

3. Debt traps are simple.

A payday lender adds extra fees each time you roll over a loan, increasing your out-of-pocket spending.

Refinancing might add months or years to the initial two-week timeframe.

4. They target low-income minorities

Payday lenders are predominantly in minority neighborhoods, according to a 2016 research.

According to the Center for Responsible Lending’s Keith Corbett, payday lending in minority neighborhoods is like Jim Crow. Corbett said in an NPR interview that during the Jim Crow period, everyone thought it was a free market. Thus it was “acceptable” for some races to travel at the bus’s rear.

The justification for these financial services is the same. Consider. Using a payday lender or rent-to-own store for financial transactions is typical in low-income communities.

5. They have bank account access

Borrowers must typically provide payday lenders access to their bank account to get a cash advance. This account access works differently than a direct deposit for bill and loan payments.

Many lenders need you to submit a postdated check when seeking a payday loan. If you don’t have enough money in your account when they cash the check, you might incur overdraft penalties, bounced check costs, and returned or failed payment fines from your bank and lender.

These fees contribute to payday lenders’ excessive expenses. Contact your bank immediately to discuss safeguarding your account.

6. Payday lenders may sue you for debts

Like other lenders, payday lenders may take you to court if you don’t pay them for long enough. A judgment might result in pay garnishment, jail time, or other penalties.

Legal disputes are costly. Small-dollar loans don’t always warrant the lender’s time and money to sue. Some corporations or debt collectors may sue or threaten wage garnishment to be paid promptly.

If you get these threats, seek assistance from a local debt management group, an Accredited Financial Counselor, or a Certified Credit Counselor.

7. They don’t build credit

Some states enable you to work up to lower-interest payday loans that may be paid in installments and submitted to credit agencies. This installment loan option is unusual.

Little information is available on how long it takes or how many unreported high-interest loans are necessary to develop credit with their loan.

Payday loans, like medical debt, only report to credit bureaus if sent to collections. Payday loans might ruin your credit if you’re not cautious.

You may get better loans and credit cards with cheaper interest rates if you have strong credit.

Alternatives to payday loans if you need money quickly

1. Review invoices and contact creditors.

Prioritize debts and consider late fees. Traditional lenders charge late payments after 15 days.

Talk to your landlord, utility provider, lender, or whomever you owe money to if you’re hurting financially. Try it sometimes. Inquire.

2. Mission Asset Fund loans

Mission Asset Fund (MAF) offers 0% interest loans to persons in need via lending circles. MAF submits your loan payments to the three main credit bureaus.

3. Federal credit unions provide payday loan alternatives.

PALs are $200-$1,000 loans with 1-6 month periods. Many credit unions give members free financial advice.

4. Cosign a personal debt

If you have low or no credit, a cosigner may help you get a loan with cheaper interest rates and develop your credit.

Who’s a cosigner? A cosigner is a close family member or friend who pledges to pay your loan if you can’t or won’t. Cosigners should have good credit.

If you don’t pay back the loan, you might ruin your cosigner’s credit. Cosigners impact your credit. Make sure you can repay the debt if you take it this way.

Here are some ways to prevent predatory loans in the future.

Stay prepared for catastrophes.

1. Prevent emergencies

Include emergency savings in your financial strategy. Experts advocate saving 3-6 months of living costs in an emergency fund. This should be emergency money you can reach fast.

APR gauges savings interest (APY). APR is the cost of using a financial instrument, not APY.

Many online banks now provide above-average APYs and don’t demand a minimum deposit to create a savings account. With a few bucks, you can open a savings account.

2. Build credit to get better financial goods.

To acquire more conventional loan products or credit cards with reasonable interest rates, create a strong payment history that indicates you can pay what you owe on time and as promised.

Taylor Day

Frequently Ask Questions

A payday loan (sometimes referred to as a cash advance or a payday advance) is a small loan borrowed for a brief period of time, often until the borrower's next payday. These short-term loans feature high interest rates and need no collateral (unsecured loans). It is not advised to use payday loans for an extended period of time. The rates and terms of payday loans vary by state.

A title loan (sometimes referred to as a title pawn or a car title loan) is a short-term loan where the vehicle title serves as collateral. Due to the fact that lenders of title loans do not verify borrowers' credit histories, these loans are popular among those with poor credit. Typically, title loans are taken out by borrowers who need cash quickly or have financial issues.

Unsecured loans, such as payday loans or installment loans, are supported solely by the borrower's creditworthiness, as opposed to secured loans, which need collateral. Secured personal loans include car title loans and pawn loans, for example.

State rules determine the maximum amount you can borrow as a short-term loan. In certain states, short-term loans (also known as payday loans) are prohibited, while in others they are permitted with a maximum loan amount. Visit our rates and terms page to get state-specific lending conditions. In addition to state legislation, additional factors may alter the conditions of your loan.

A personal loan that is repaid over time with a predetermined number of periodic payments or installments is known as an installment loan. Due to the lower APR, installment loans can be taken out over a longer term than payday loans. Installment loans are commonly seen as a preferable alternative to payday loans. Typically, installment loans are repaid in predetermined amounts that include both principal and interest.

The Annual Percentage Rate, or APR, is an annualized version of your interest rate. When picking between several types of loans, the APR assists in comparing the costs of each. The annual percentage rate (APR) for a loan may include costs, such as origination fees. Remember that while APR is essential, it is only one of several elements to consider when selecting a loan.

Yes. Your credit score is not the only criteria taken into account when analyzing your loan application. However, a low credit score can result in higher interest rates and fewer lending possibilities. A title loan is a popular option for consumers with poor credit because title loan lenders do not consider credit history.

Credit score ranges differ depending on the credit scoring algorithm employed and the credit bureau that generates the score. According to FICO, a credit score between 300 to 579 is poor or very poor. A satisfactory credit score ranges from 580 to 670. Credit scores are determined differently depending on the credit scoring model's parameters, such as payment history, amounts owing, length of credit history, etc.