Before you dive into statistics about payday loans, it is important to define what payday loans are and how they differ from other types of short-term lending. A payday loan is a short-term loan that can cover the borrower’s living expenses.
Payday loan lenders typically offer loans between $500 and $1,000 depending on the borrower’s pay. The borrower will repay the loan from their next paycheck, which is usually within two weeks. A payday loan is available to anyone without a credit check. To be eligible, payday lenders may require income verification and valid identification.
Payday loans are different than other types of short-term lending like a credit card cash loan. This is due to the high fees and short repayment periods. A payday loan is used to cover immediate expenses. Borrowers pay more for a payday loan than they would if an installment loan had a longer repayment period, or a credit card cash advance.
Who Takes Payday Loans?
According to most recent statistics about payday lending in America, short-term loans are used by borrowers of all income levels and from all regions. Unfortunately, many borrowers are living paycheck to paycheck and find it difficult to meet their monthly expenses when they need them.
Payday loans are used by millions of Americans each year to cover cash flow issues, from one pay period to the next. In addition to paying billions in loan fees, they also cost billions. A payday loan borrower will be in debt for an average of five months. This is mainly due to short-term loans.
Why Do People Take Out Payday Loans?
Payday loans are meant to be used for unexpected expenses like vehicle repairs or medical bills that can cause financial problems. Seven out of ten payday loan borrowers might also use this short-term funding to pay their expected bills each month, such as utilities or car payments.
Here are some uses of payday loans:
- Regular living expenses such as gas and groceries
- Assistance with a mortgage payment
- Car payments
- Card payments
- Financial emergencies
What are the Best Places to Get Payday Loans for People?
Today’s internet world makes it possible to obtain payday loans online. This allows you to quickly get the money you need without ever leaving your house. While brick-and-mortar locations are available to provide funds to borrowers, their fees may be higher than the online payday lender. This is because they must maintain a brick-and-mortar location.
Unspeakable Payday Loan Trends
Although payday loans are common in states that offer them, they also have some drawbacks. Because of the high-interest rates and fees charged, payday loans should be avoided. A single payday loan can be more costly than cash advances or personal loans.
Recent payday loan statistics show that borrowers are more inclined to roll over their payday loans than pay the full amount. To pay the original loan, a rollover involves taking out a new loan (with additional fees). It creates a cycle of debt that is difficult to afford for those who are unable to pay it.
Here are some statistics about payday loans that highlight these common issues.
- Payday loans cost on average $520 for borrowing $375 at first.
- Payday lenders charge an average of $55 per two-week loan.
- A payday loan typically requires a $430 payment from your next paycheck. That’s 36% of your gross pay.
- Fast 80% of payday loans can be repaid within two weeks after paying off an existing payday loan.
- 75 percent of payday loans are borrowed by people who have taken out a previous payday loan in the last year.
Statistics on payday loans may show a very grim picture of short-term lending for borrowers who are in financial need. Many people who take out payday loans love their speed and convenience and for those with credit concerns it can help them satisfy a need for cash to cover emergency expenses.
It is essential to fully understand the cost of a loan and your ability to repay it without falling into a debt cycle from paycheck to paycheck.