Statistics of Payday Loans | bank rate

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Here’s a breakdown of payday loan demographics by parental status. Parents are more likely to take out payday loans than non-parents.

parental status Percentage that has used a payday loan
non-parent 5%
parent 8th%

Payday loans in America

Payday loan interest rates and terms can vary widely by state. Some states don’t even allow payday lenders because sometimes these lenders can be debt traps. In states that allow payday loans, one of three levels of regulation may apply.

Permissive states allow high lender fees and APRs, and generally have the fewest restrictions. Hybrid countries tend to have more restrictions, either interest rate caps, limits on loans per borrower, or borrowers longer to repay the loan. Restrictive states either do not allow payday loans or have an APR cap of 36 percent, making it virtually impossible for payday lenders to locate in those states.

Payday loans are most common in urban areas and the Midwest, with 7 percent of city dwellers and 7 percent of Midwest residents using them.

Why do people use payday loans?

Payday loans are for emergencies or unexpected expenses, and it’s generally wise not to use them for anything else if possible. If someone is living paycheck to paycheck and falling behind on bills, a payday loan to cover groceries or rent can be a good idea. Unfortunately, the fees associated with these loans are usually higher than the loan itself, putting borrowers further into the debt cycle.

However, the majority of payday borrowers, 69 percent, use these loans for regular expenses.

Payday loans are commonly used to pay for:

  • Utilities
  • car payment
  • Credit card payment
  • Rent/mortgage
  • Food

Alternatives to payday loans

If you are in a tough financial situation and want to borrow money quickly, payday loans are not your only option. Payday loans typically start a credit cycle, and borrowers are likely to be overwhelmed with extremely high fees. There are several alternatives to taking out a payday loan, including bad credit lender loans, credit card cash advances, and personal installment loans.

These options come with lower fees and longer repayment periods. Credit card cash advances have high APRs, similar to payday loans, but they allow the borrower a longer period to repay the loan.

While personal loan interest rates will be higher for less-qualified borrowers, personal loan rates are capped at about 36 percent, significantly lower than payday loans. In addition, personal lenders typically charge fewer fees than payday loans.

If you decide to get a personal loan, make sure you research the current best personal loan rates and best loans for bad credit.

The final result

Payday loans can be extremely helpful for those struggling with unexpected expenses or falling behind on everyday expenses. Payday lenders lend money to people who may not qualify elsewhere. However, borrowing one payday loan usually results in borrowing more, leaving borrowers in a debt cycle. Younger, lower-income borrowers are more likely to take out these loans, and people of color also tend to take out higher-interest payday loans.

If you are considering a payday loan, make sure you know the payday loan rules in your state and that you are getting the lowest APR that you can find in your area. Also, beware of payday scams as a lack of regulation in some states can lead lenders to take advantage of borrowers. However, if you can qualify, taking out a personal loan or credit card cash advance is a safer and less expensive option.

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