Payday lending, provides Americans with a cash advance on their paychecks. Payday loans have been increasing in popularity over the last decade and, as of 2020, there are around 23,000 payday lenders in the United States.
How many Americans use payday loans?
12 million Americans use payday loans each year. In the past five years, about 6 percent of adults in the US have used payday lending, and this will likely continue to increase. Every year, a total of $9 billion is spent on payday loan fees.
Why are so many Americans using payday loans?
The majority of payday loan borrowers are making a mistake in the way in which they use this type of loan. They are either not taking the necessary precautions before choosing this loan, or not borrowing for the right reasons – or both.
Not taking necessary precautions
As payday loans are so prevalently used in the US, it is clear that users aren’t taking the necessary precautions. This type of loan should only be considered if you have a steady income that will allow you to repay it. However, more than half of payday loan borrowers struggle to meet monthly expenses. If you are not financially stable, a payday loan will not be the right help in your situation. Statistics show that only 14% of borrowers can actually afford to pay back their payday loans.
Not borrowing for the right reasons
Payday loans are often expensive, and only recommended for one-off emergencies. Millions of Americans are not using payday loans as they are designed to be used – for temporary and unforeseen expenses. Some examples where a payday loan could be considered are: emergency car repairs, hospital or veterinary bills. However, 70% of those taking out payday loans are using them for regular recurring expenses such as rent and utility bills instead of emergency expenses. Some borrowers also use a payday loan to repay other loans, which they should never be used for.
What is the impact?
The impacts of so many Americans using payday loans are widespread. The result of high-fees can often see a payday loan only solving financial worries in the short-term, with money difficulties returning later on. After using a payday loan, the largest economic impact on you could be finding yourself in a debt cycle. Three-quarters of payday loans are obtained by people who have used them in the past. Not only this, but 80% of payday loans that Americans take out are within just 2 weeks of paying off a previous payday loan.