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Payday Lending in the US Who Borrows Why Where Are They Borrowing From

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Payday loan is the most popular quick cash product in the United States. More than 15 million Americans are taking them every year now. Who are the people taking these loans, why are they doing so, and from where are they getting their payday loans? Let us take a closer look at a few key findings.

Who Are Taking Payday Loans?

Extensive surveys have revealed that a borrower on average takes about eight payday loans of $375 every year. Surveys have further discovered that about 6% adults in the US have taken out these loans in the last five years. About three quarters of them have taken the loan from a storefront lender. The other one quarter has taken the loan from an online store.

Contrary to what many critics say that these loans are popular among the Asian, Black and Hispanic population, the fact is that, most of the borrowers are white and females. Most of the borrowers are between the age of 25 and 44 years. The ones who are more likely to take the loan are those without a four year college degree, people who are making less than $40,000 every year, home renters, and people who are either divorced or separated. These loans are often a savior to them, as they are able to get ready cash when they need it the most.

It needs to be noted here that those with a lower income are more likely to take a payday loan, but there are other key issues as well, and they are often more predictive than income. For instance, it has been seen that 8% renters making between $40,000 and $100,000 have used a quick cash loan, while 6% of homeowners making between $15,000 and $40,000 have done so.

Key Findings

Those between the age of 25 and 44 years are more likely to take a payday loan. By contrast, loan usage is below average among those between the age of 18 and 24 years, and those above the age of 50. In fact, seniors are rarely taking these loans. Only 2% above 70 have taken a payday loan in the last five years.

Homes earning less than $40,000 every year are three times more likely to take a payday loan, as compared to homes that are making more than $50,000. But interestingly, people from every income bracket have taken a payday loan, and this includes even the top earners. However, it is the highest (11%) among those making between $15,000 and $25,000, and low (1%) among those who are earning more than $100,000. Borrowing usually decreases as income increases.

Those who are parents usually take a payday loan more than non-parents, particularly those who are making less than $50,000 every year. Only 4% parents earning $50,000 have taken a quick cash loan in the last 5 years, while it is 12% among those who are earning less than that.

It has also been observed that loan usage is the highest in the South and the Midwest regions of the US. Payday loans seems to be very popular in Oklahoma and Missouri (13% people have taken the loan in Oklahoma, while it is 11% in Missouri). Also, loan usage is higher significantly in the urban areas, as compared to the suburbs, which is another myth. Of course, the one major reason for this significant variation is because of state regulations for payday lending.

Why Are the Borrowers Taking Payday Loans?

Studies have revealed that most people who are taking these loans want to use the money to cover their living expenses, or to pay for a sudden emergency, like the car breaking down or a medical issue. Here are some of the most common causes.

An unexpected expense for which it is difficult to have a monthly budget, like medical expense or urgent car repair.
Mortgage payments.
Credit card bills.
Rent.
Utilities payment.

What the Borrowers Will Do If They Cannot Get a Payday Loan?

Many respondents have indicated that the first thing they are going to do is cut back on their expenses, particularly clothing and food. But in reality that is not always possible, and even if done, may not be enough to meet the sudden expense. After all, you accumulate money gradually once you cut back on your spending. But what if you have to suddenly pay $300 towards your car repair? Where do you get the money from?

Borrowers are cutting back on their spending anyway, to pay back the loan they took. It is just that the payday loan gives them the much needed time, the breathing space to take control of their life once again.

Some other respondents have said that they sell their personal possessions or approach family and friends. But there is a certain negative feeling about this. It’s not a nice thing if you have to sell your precious possessions suddenly, or have to approach friends and family. On the contrary, you can get a payday loan silently. Nobody has to know about your temporary financial situation. And of course, you can keep your possessions.

Interestingly, only 4% respondents said that they will approach a bank or financial institution. 37% said that they will use their credit card, which can be a dangerous thing to do as credit card interests are steep. It can easily lead to a debt trap. Many studies have revealed that payday loans can be cheaper than credit card debt.

Some people have even said that they will approach their employer. This too, naturally, is not a nice situation. After all, your employer may think that you will begin to look for a new job as you are unable to meet your expenses with the present pay.

Payday Lending Regulation and Usage

In the United States, payday lending regulations vary from one state to another, and the regulations affect usage.

For instance, there is a huge net decrease in usage in the states where there are strong legislation against these loans. Borrowers are unable to take a loan from a storefront or from the internet. Just 2.9% adults have taken a payday loan in the last five years from all sources combined in these states. On the other hand, in the states with moderate regulation, the loan usage is 6.3%. It is 6.6% in the states with the least regulations.

But the findings also indicate that strong regulations might actually be counter-productive as often people who need the money would go to the grey market if they cannot get a payday loan. Of course the terms are not consumer friendly in the grey market. Banks and conventional financial institutions are rarely an option as they take a lot of time in issuing loans. People in an emergency cannot wait that long.

Where Are the Borrowers Taking Their Payday Loans From?

It seems like, the retail storefronts are the most popular places for payday loans. About three out of four borrowers are taking a loan from these places. On the other hand, one in six people are going online to take a cash advance loan. Interestingly, about 10% people have used both an online source and a storefront for a payday loan.

Some groups of individuals are more likely to go online when they need a loan. Those who are more likely to do so are younger people, people with a college degree, and those who are making more than $50,000 a year. These are the people with a higher rate of internet usage. On the other hand, older people, earning less than $50,000, and without a college degree, tend to favor store fronts. Also, white and physically challenged borrowers are more likely to approach storefront lenders.


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