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Payday Loans

What Percentage of People Default on Their Payday Loans

By June 20, 2022June 24th, 2022No Comments
What Percentage of People Default on Their Payday Loans

What Percentage of Borrowers Fail to Repay Their Payday Loans?

On average, 14 percent to 20% of persons who take out payday loans cannot repay them and must either write off the amount or enter into a repayment plan.

Customers who take out payday loans do so for various reasons, including difficulties or low credit ratings. As a result, there is always a risk of default, which explains the high-interest rates imposed to compensate.

Payday loans are a convenient and fast method to borrow money right now, and they’re often utilized by those who cannot make it until their next payday. However, since these loans are intended to be a temporary cure for money troubles rather than a long-term solution, you should never ask for a loan for more money than you know you can afford to repay.

What are Payday Loans Statistics?

According to statistics, 14 percent to 20% of payday loan customers cannot repay their debts. As a result, repeat borrowing rates are very high, with one out of every four payday loans being rolled over or re-borrowed at least nine times.

There are various reasons why individuals may be unable to repay their debts, and each scenario is different. Finding yourself unexpectedly jobless, having a problem with increasing debt, or being unable to afford to repay loans are all scenarios that leave individuals unable to make payments.

Why Can’t People Pay Back Their Debts?

Even though payday loans are touted as a way to meet unexpected wages in between payments, 7 out of 10 borrowers use them to make routine monthly obligations like rent and electricity. As a result, if people depend on these loans to fund their essential expenditures, their income is insufficient to meet their needs.

The following are some of the reasons why individuals fail to repay their payday loans:

Lacking in Financial Resources or Already Deep in Debt

The typical payday loan borrower is generally short on cash, with 58 percent of borrowers failing to fulfill their monthly obligations. A low-income, jobless, or deeply indebted person is the usual profile.

The average payday borrower is in debt for five months of the year, owing to repeated borrowing or the fact that they are already in debt when they apply for the loan.

Bad Credit

Payday loan customers usually have weak or adverse credit, making it difficult to get loans from regular lenders. Their terrible credit means they won’t be able to stick to a repayment schedule.

Because of their high-risk profile and bad credit, many payday loan customers cannot get loans from conventional financial institutions and banks. As a result, one of the hazards lenders face when offering payday loans is that borrowers may default on their payments.

Getting Rid of Other Debts

Many debtors have previously paid off previous debts. Indeed, 80% of payday loans are taken out within two weeks after repaying a prior payday loan, making repayments very difficult.

In addition, three-quarters of payday loans are taken out by someone who has previously taken out a payday loan.

Many borrowers are unable to afford to take out loans.

Many people seeking a payday loan are in a low-income group, with an annual salary of less than $30,000. As a result, even before needing to return a loan, they struggle to meet their monthly costs.

The average payday loan has a repayment amount of $430, about 36% of a typical borrower’s monthly income. According to statistics, most borrowers can only manage to return 5% of their wages to fund their basic costs.

APR is high.

Payday loans have an average annual percentage interest rate (APR) of roughly 400 percent. A credit card’s “high” APR, on the other hand, is about 30%. Because of these loans’ high-risk nature, lenders demand higher interest rates than typical lenders.

Lenders are not required to charge at a competitive rate; instead, they can set the highest rate allowed by state law.

What Happens If I Don’t Pay Back My Loan?

When borrowers cannot repay their payday loans, they face financial difficulties as they try to balance repayment with their other financial responsibilities. This is why so many people take out payday loans again and again.

If borrowers fail to return the loan within the agreed-upon period, the lender has the right to demand extra costs for re-borrowing or rolling over the debt. The lender will set up automatic withdrawals from your account to recoup as much money as possible for their loan.

If this fails, your lender will commence collection calls, which will include contacting you and, in some situations, physically visiting you to try to collect the loan.

If this fails, your lender may institute wage garnishment, which entails withholding a portion of your income and sending it straight to the lender to repay your debt.

Will My Lender Assist Me If I Can’t Pay Back My Loan?

Your lender has always been there to assist you kept afloat when you need it. Even if you cannot make your agreed-upon repayments, many lenders will continue to use this strategy.

Alternative repayment arrangements enter the picture at this point. If you sense that you won’t be able to keep to the plan you agreed to, it’s advisable to speak with your lender. Their first aim is to get their money back, which means they could be ready to change the conditions of your loan to make that happen and make your finances more manageable for you.

This might include allowing you to make fewer payments over a more extended period or lowering the APR on your loan.

So, indeed, they are most likely to assist you. You should not, however, depend on their goodwill. Instead, before you commit to a loan, you should have a reasonable repayment plan in mind.

Statistics on Payday Loans (Editor’s Pick)

  • Users of payday loans spend an average of $520 in fees to borrow $375.
  • Those earning less than $40,000 a year have a 62 percent higher chance of using a payday loan.
  • Payday loans are substantially more common among those aged 25 to 49.
  • In the United States, the annual percentage rate (APR) on a $300 payday loan may be as high as 664 percent.

The average default rate on payday loans is 6%, the same as the average credit card default rate.

Payday Lending Statistics in General

  1. Borrowers who take out 10 or more payday loans each year account for three out of every four loans.

A significant portion of the payday loan industry is predatory, focusing on underbanked or low-income people and charging them exorbitant interest rates. Consequently, debtors are often trapped in a debt cycle, in which they must borrow money to repay their debts.

  1. 15% of new payday loans begin with a 10-loan series.

Half of all outstanding payday loans in the United States are part of a series of at least ten loans. According to payday loan statistics, the repeated rolling over of loans to repay previous ones, which continues adding to the costs, accounts for most lenders’ earnings.

  1. The typical lump-sum payment consumes 36% of the borrower’s monthly income.

Imagine being cash-strapped and desperate enough to take out a loan with a 400% interest rate, only to be obliged to return it with your next paycheck. Unsurprisingly, many borrowers cannot repay their payday loans in full and are forced to borrow again.

  1. Nearly 70% of those who take out payday loans do so to address a recurrent obligation.

One of the most frequently held payday loan facts is that these short-term loans are intended for emergencies. However, according to surveys, most payday loans in the United States are used to meet typical costs such as utilities, credit card bills, food, rent, or mortgage. Only approximately 16% of people utilize them for unforeseen expenses like auto repairs or medical crises.

  1. On average, consumers pay $520 in fees to borrow $375.

The typical payday loan user is in debt for five months of the year. This is because taking out a single loan does not address the payment obligations of a large number of borrowers. Payday loan data also demonstrate that the hefty fees—an average of $55 for a two-week payday loan—mean that every delay, rollover, or extra borrowing increases the debt load significantly.

  1. A $300 payday loan’s annual percentage rate (APR) might be as high as 664 percent.

The cost of a payday loan varies significantly by state. While some jurisdictions have outright banned payday lending, others have put rate limitations on short-term loans. Consumers in states without such restrictions may find up paying through the roof. Payday loan data by state reveal that Texas, Utah, Idaho, Nevada, and North Dakota are among the highest APRs (521 percent to 527 percent ).

  1. 81% of payday loan users believe they would cut down on their spending if the loans were no longer accessible.

Many people would also put off paying certain payments, enlist the assistance of friends and family, or sell personal belongings. While there are alternative solutions, many consumers ignore the excessive payday loan interest rates and costs due to a lack of finances. While not all these loans are detrimental, they may be in some instances.

  1. People earning less than $40,000 yearly have a 62 percent greater chance of using payday loans than those making more.

According to payday loan usage data, most borrowers are in more difficult financial positions. Renters are 57 percent more likely to use payday loans than homeowners, 82 percent more likely to have some college education (or less) than those with a four-year degree, 103 percent more likely to be separated or divorced than those with other marital statuses, and 105 percent more likely to be African Americans than different ethnicities.

  1. People between the ages of 25 and 49 are more likely to utilize payday loans.

According to payday loan usage data, the 25 to 29 age group has the most excellent chance. This is when individuals start a family and have fewer salaries to cope with the increasing obligations. The options are relatively modest in the 18 to 24 age range, but they begin to decline again for those aged 50 and older. In the United States, those over 70 are the least likely to utilize payday loans.

Payday loan use is strongest in the Midwest and metropolitan regions of the United States.

Payday loan interest rates vary by state, even within areas, depending on rules. On average, 7% of inhabitants in the Midwest utilize such loans. According to state-by-state payday loan data, the South, West, and Northeast percentages are 6 percent, 6 percent, and 3 percent, respectively. Payday loans are also used by 7% of city dwellers and 6% of exurban and rural populations. Small towns and suburban regions account for 4% and 3% of the total.

  1. In the United States, there are around 23,000 payday lenders, more than double the number of McDonald’s restaurants.

It’s a bit over-quoted piece of information, but it’s still intriguing. Given that numerous states now do not allow payday lending or have an interest rate and charge limitations on payday loans, the availability of payday loans in the United States is astonishing. While most figures suggest a decline in storefront payday loans, the industry’s total size is growing due to the rise of internet lending.

The Center for American Progress (CAP) is a think tank based in Washington, D.

  1. Fintech loans increased their percentage of unsecured personal loan amounts from 5% in 2013 to 38% in 2018.

According to payday lending data, this unsecured personal loan is easily accessible through applications and websites. This instant access to cash without the requirement for collateral or good credit is especially appealing to youthful borrowers. While not all lenders attempt to take advantage of borrowers, consumers should exercise caution while using such services.

  1. The average default rate on payday loans is about 6%, similar to the default rate on credit cards.

While many payday loan borrowers cannot repay their debts on time, lenders have several options for recouping their losses. Despite having a similar default rate as credit cards, payday loans have an APR of 400 percent or more excellent, whereas credit card interest seldom exceeds 30%. On closer examination, the notion that the significant danger of US payday loans justifies the expensive claim seems false.

75 percent of Americans want payday loans to be more regulated.

The many US payday loan regulations suggested or adopted by the CFPB have received widespread public approval in the United States. For example, eight out of ten individuals prefer requiring that payments take up a modest portion of each paycheck and that debtors be given more time to return their debts.

Most Commonly Asked Questions

What is the size of the payday lending industry?

According to various payday loan industry data, the sector’s yearly revenue from interest and fees is over $6 billion. This is based on almost $35 billion in loans.

Payday loans earn money in a variety of ways.

Payday lenders profit by charging high-interest rates on short-term loans and costs associated with the borrowing procedure. The payday lending business generates a significant portion of its money—up to 90% occasionally—by renewing defaulted loans.

Is it true that payday loans are regulated?

Payday loans, like other forms of lending in the United States, are governed by laws such as the Consumer Credit Protection Act of 1968, the Truth in Lending Act of 1968, the Equal Credit Opportunity Act of 1974, the Fair Debt Collection Practices Act of 1977, and the Electronic Fund Transfer Act of 1978. (1978).

Which states prohibit payday loans?

Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Vermont, and West Virginia are among the thirteen states that do not allow payday loans. Payday loans are illegal in the District of Columbia as well.

What is the maximum amount of a payday loan?

According to payday lending statistics, one-time payday loans often do not surpass $1,000.

What is the typical payday loan interest rate?

Payday loans have an average annual percentage rate of interest of close to 400 percent.

What is the interest and charge limit on payday loans?

While some states have interest and charge limitations on payday loans, the amounts vary by jurisdiction. At the time of writing, several forms, such as Idaho, South Dakota, Texas, and Wisconsin, do not have an interest rate or charge limitations for payday loans.

Who takes out a payday loan?

Payday loan statistics demonstrate that, due to the high-interest rates on these loans, users are often persons in dire circumstances with limited choices for short-term financing at a lower interest rate.

How many people in the United States utilize payday lenders?

According to a Pew Charitable Trusts research, around 4% of Americans utilize payday loans yearly.

Is your credit checked when you apply for a payday loan?

Most payday lenders do not do credit checks before approving a loan. One of the reasons such loans are high-risk and expensive is because of this.

Does it affect my credit?

Payday loans in the United States do not appear on your credit record and, as a result, neither harm nor boost your credit score. If your debt is put in the hands of a collection agency after several delays or defaults, payday loan data suggest that it might result in a drop in your credit score.

What happens if you are unable to repay your payday loans?

If you are unable to repay your payday loan, one or more of the following events may occur:

  • You may be charged extra costs.
  • A third-party debt collection agency will be used if the payday lender cannot collect payment from you. To encourage you to pay, such firms use increasingly aggressive approaches. According to payday loan data, lenders often contact collection agencies after 60 days of unsuccessful attempts.
  • Your credit score may suffer if your debt is turned over to a collection agency.
  • A debt collection agency or a lender may file a lawsuit against you for unpaid debts. Liens on your property or wage garnishment might result from this.
  • You may have trouble obtaining financing in the future if your credit score has dropped or if your credit record shows a default.

Is it a crime to fail on a payday loan?

No, defaulting on a payday loan in the United States is not a criminal. Thus you will not be arrested. Despite this, data on payday loans reveal that many collection firms threaten debtors with arrest, which is against the law.

Is it possible to go to court for a payday loan?

Although defaulting on a payday loan is not criminal, you may be prosecuted in civil court.

How many payday loans can you have on the go simultaneously?

It is theoretically feasible to have many payday loans open simultaneously. The screening procedure is now more stringent under the new CFPB standards. This implies that even for modest loans (under $500), you must pay at least one-third of your current debt to receive a new one. According to payday lending statistics, you will most likely be required to establish your capacity to repay all of your debts before being given additional money.

Is it possible to receive two payday loans from separate lenders?

Borrowing from two or more separate payday lenders is subject to the same restrictions. While it is theoretically conceivable, since lenders may check your bank statements for any existing loans, you are more likely to be approved for a second loan if you demonstrate your capacity to repay the first.

How many people take out payday loans more than once?

According to current payday loan data, almost 80% of payday loans in the United States are taken out within two weeks after repaying a prior loan. This implies that nearly four out of every five people who take out a payday loan will need to borrow again.

Summary

While not all payday lenders are attempting to take advantage of you, the sector does have several specific traits that put consumers in danger. If you need urgent short-term cash, it’s even more crucial to resort to trusted US payday loan companies. In any event, we hope that these payday loan data may prompt you to exercise more care the next time you contact a lender.

Taylor Day