Millions of borrowers in America take out a payday loans at least once a year. Most of these borrowers earn little and they struggle to meet their regular expenses.
What is a Payday Loan?
Payday loans are short-term financing solutions provided by private lenders mostly. These loans come with a maturity of only 15-30 days.
The term of a payday loan usually extends until the next “payday” of the borrower. It is a source of “Fast Cash” for the borrowers.
Borrowers must be 18 years old, have a verifiable source of income, and have a bank account.
How Many People Take Out Payday Loans in the US Each Year?
Nearly 12 million Americans use Payday loans at least once a year.
It translates to roughly 6% of the total American population using these loans.
There are nearly 23,000 online and storefront lenders offering payday loans in the US.
The average size of each payday loan is $375 and the fee paid on each loan is $520.
Most of these payday loans are recurring. Around 75% of these loans are reborrowed or renewed with the same terms.
Most of the borrowers use them for recurring expenses like rent payments, utility bills, and monthly installments on other loans.
Payday loans are supposed to be granted for emergency use only. However, most Americans consider these loans as a means to fund their monthly expenses.
Nearly 12 million Americans use payday loans every year.
Who Uses Payday Loans?
There are different ways to categorize payday loan users in the US. As mentioned, there are nearly 12 million or 6% of Americans use payday loans once a year.
Here are some key stats on the users of payday loans across the US:
- Young people have used payday loans more frequently than the general age category. Around 9% of adults aged 25-29 have borrowed these loans.
- 12% of African-American users have received a payday loan at least once a year.
- 13% of those who are separated or divorced have used these loans.
- 10% of unemployed people have used payday loans.
- Nearly 12% of these borrowers have some disability.
- People with lower education tend to take more unsecured loans. 7% of these borrowers have “some school” and another 7% of them have “some college” education.
- 10% of the renters take payday loans as compared to 4% of homeowners.
- 9% of the people having an income of less than $15k, 11% with less than $25k, and 16% under $40k have obtained these loans.
Most payday loan borrowers are repeat borrowers. A staggering 80% of payday borrowers are likely to renew their loan within 14 days again.
Then, 15% of these sequence loans are followed by another sequence and may end up with at least 10 loan renewals.
One of the common reasons for renewed payday loans is the borrowers using them for recurring expenses rather than emergency use. Around 58% of these borrowers struggle to meet their monthly expenses.
Most payday loan borrowers renew their loans. Image source: CFBP report
What Do Americans Use Payday Loans For?
Payday loans are designed for unforeseen events and emergencies. These are only advised when you don’t have access to cash through any other means.
However, most American borrowers are borrowing payday loans for non-emergency uses.
Around 67% of the borrowers use these loans for recurring monthly expenses. 53% of these borrowers then use these loans for regular expenses like monthly car payments, rent, and utilities.
A small proportion of the borrowers (10%) use these loans for rent or mortgage payments. Only 16% of the borrowers use these loans for emergencies or unforeseen events like an accident.
This unnecessary use of these high-cost loans is one reason why borrowers go into a debt cycle and they keep renewing their payday loans.
Which US States Process the Highest Number of Payday Loans?
Payday loans are more popular in states where they’re allowed and there are no regulatory restrictions. The usage is minimum where states have imposed a ban on these loans.
In the US, 28 states have permissive laws for payday loans. Some of these states include:
- Alabama
- Alaska
- Oklahoma
- Texas (see payday loans in Texas for more information)
- California
8 states are hybrid regulations or these have heavily restrictive laws for these loans. Some of these states include:
15 states have banned the use of payday loans. Some of these states include:
- Arizona
- Arkansas
- New York
- Washington DC
