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Payday Loans in the USA

It is estimated that approximately 6 percent of American adults have taken out payday loans within the past five years. Nevertheless, specific categories are more likely to use payday loans than others.

Most borrowers have an annual family income of less than $40,000. And 52 percent fall into the age bracket of 25 to 44.

This indicates that most people who take out loans are younger people with moderate to low incomes. Some things about a person’s life make them more likely to get a payday loan.

 

  • Payday loans are used 57% more often by renters than by homeowners.
  • Payday loans are taken out by an additional 62% of people living in households with an annual income of less than $40,000.
  • Payday loans are taken out by those who do not have a college degree at a rate that is 82% higher than those who do have a college degree.
  • African Americans have a 105% higher propensity to take out payday loans than people of other races and ethnicities.

What is a payday loan?

Payday loans are short-term loans with extremely high-interest rates that aim to give borrowers an immediate cash advance while in a financial bind.

Payday loans offer a direct funding source that many people who struggle with debt or have terrible credit can access, even though they may not qualify for other types of loans elsewhere.

Payday loans come with many hazards, and the industry that provides payday loans can sometimes be predatory.

Before deciding to take out a payday loan, it is essential to understand how these loans operate, who uses them, and how they are used.

Payday loans can impact an individual’s financial situation. GadCapital.com provided the following information regarding payday loans in the United States.

What are the statistics on cash advance loans?

  • Each year, twelve million people in the United States use payday loans.
  • The typical amount borrowed for a payday loan is $375 for a term of two weeks, and the specific amount of fees is $520.
  • The annual percentage rate (APR) on the typical payday loan in Texas is the nation’s highest at 664 percent.
  • Only 14% of those who take out payday loans can repay the money they borrow.
  • Payday loan interest rates can range anywhere from 391% to 521% in states with no rules.
  • 55% of the population of the United States resides in one of the 28 states with payday loan regulations that are more permissive and lax.
  • 58% of people who take out payday loans do so because they have trouble meeting their monthly obligations.
  • Eighty percent of all payday loans are taken out within fourteen days of the borrower’s having paid back a previous payday loan.
  • Most people who get payday loans end up taking out additional loans.

Users of payday loans by age group

The following chart provides a demographic breakdown of payday loan borrowers based on age. People take out payday loans in their 20s at a higher rate than any other age group.

 

18-24 – 5%

25-29 – 9%

30-34 – 8%

35-39 – 7%

40-44 – 7%

45-49 – 7%

50-54 – 5%

55-59 – 4%

60-64 – 4%

65-69 – 3%

70+ – 2%

Customers of payday loans by race and ethnicity

The following chart provides a demographic breakdown of payday loan borrowers based on race and ethnicity. Compared to people of other races and ethnicities, African Americans have a significantly higher propensity, on average, to take out payday loans.

 

White – 4%

African Americans account for 12%.

Hispanic/Latino – 6%

Other ethnic or racial groups – 6%

Users of payday loans are categorized by their home states.

The following chart provides a demographic split of payday loan borrowers based on their housing status. Renters have a significantly higher propensity to use payday loans than homeowners.

Renters’ – 10% , 4% comes from homeowners.

Users of payday loans based on income

The following chart provides a demographic breakdown of payday loan borrowers according to their income.

Payday loans are taken out by a significantly higher percentage of people who make less than $40,000 annually compared to those who make more than that amount annually.

 

Below $15k-9%

$15k-$25k-11%

$25k-$30k-8%

$30k-$40k-8%

5% 40k-$50k-5%

$50-$75k-4%

$75k-$100k-3%

1% for any amount over $100,000.

What are the rates and terms of payday loans in the USA?

The USA’s rates and payday loan terms can differ from one state to the next. Some states don’t even let payday lenders operate because they can sometimes lead people into more debt. In states where payday loans are legal, they may be regulated in three ways.

Most of the time, permissive states have the fewest rules and allow lenders to charge high fees and APRs. Hybrid forms tend to have more regulations, like caps on interest rates, limits on how many loans each borrower can get, or more time to pay off the loan.

States with strict rules either don’t allow payday loans or cap the APR at 36%, making it nearly impossible for payday lenders to set up shop there.

Payday loans are most common in cities and the Midwest, where 7 percent of people in cities and 7 percent in the Midwest use them.

Why do people use payday loans?

If feasible, avoid using payday loans for anything other than emergencies or unexpected costs. A payday loan may seem like a good solution if someone lives paycheck to paycheck and gets behind on bills.

Most of the time, these loan fees are more significant than the loan itself, which puts people deeper into debt. Most payday loan consumers (69%) utilize them for everyday expenses.

Common uses for payday loans include:

 

  • Utilities
  • auto loan
  • charge card.
  • Rent/mortgage
  • Food

What are payday loan alternatives?

Payday loans aren’t your only choice if you need money immediately. Payday loans start a cycle of borrowing, and borrowers might go in over their heads with high costs.

Payday loans can be replaced by loans for people with bad credit, cash advances on credit cards, and personal loans that are paid back over time.

These have lower fees and more extended periods. Credit card cash advances offer high APRs, like payday loans, but a more extended repayment period.

Personal loan rates are 36%, which is significantly lower than payday loan rates. Private loan lenders charge less than payday lenders.

Study the best rates and bad credit loans if you want a personal loan.

Summary

Payday loans can help with unforeseen costs or falling behind on bills. Payday lenders help folks who can’t borrow otherwise.

One payday loan often leads to more, creating a debt cycle. People of color and younger, lower-income borrowers are more likely to take out payday loans.

If you’re considering a payday loan, study your state’s requirements and get the lowest APR in your area. Lack of regulation in some states might lead to payday fraud.

If you qualify, personal loans or cash advances on your credit card are safer and less expensive ways to get money. 

Payday Loans