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.
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.
But why are so many Americans using payday loans? And what is the impact of all this? Pheabs explores.
Payday Loan Statistics
According to Credit Summit, 12 million Americans a year use payday loans. In 2017, there were more than 14,300 payday loan storefronts in the US.
The average payday loan size is $375, typical borrowers for this type of loan earning $30,000 a year.
It’s also reported that over half (58%) of payday loan borrowers struggle to meet their monthly expenses, with only 14% actually being able to afford repayment on their loan.
These statistics reveal how important it is to only borrow loans when you can afford them. While you won’t go to prison for not paying back a payday loan you are still likely to receive penalties for these, including the following:
- Late fees.
- Damage to your credit rating.
- Issues accessing future finance and loans.
- Borrowing may be more expensive in the future.
Find out more on what can happen if you don’t keep up with repayments on your payday loan here.
What Percentage of Payday Loans Are Repeaters?
75% of payday loan borrowers have used this form of borrowing before. A whopping 80% of payday loans are taken out only weeks after borrowers have finished off paying back a previous payday loan, with 7 out of 10 payday loan users taking loans out for recurring expenses – e.g. rent and other regular bills.
Payday loans are not designed for such recurring, long-term use. These types of loans should only be used for one-offs, for example, for when your car breaks down and you need it fixed before you can get the money to do so from your next payday.
Before taking out any form of loan, it’s important to check the financial product you’re applying for is best suited to your financial situation, and to get the appropriate help when struggling with your finances long-term.
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.
If you are trying to figure out whether to take out a payday loan, take a look at our guide, Is A Payday Loan Right For Me?