Statistics on Payday Loans

Statistics on Payday Loans

• In the U.S., payday loans are four times more expensive in states with fewer consumer protections.
• The average payday loan term lasts around two weeks.
• On average, 20% of payday loan borrowers default on their loans.
• More than half of borrowers who obtained their payday loans from online lenders end up defaulting.
• 80% of borrowers tracked over a 10-month period rolled over or reborrowed payday loans within 30 days.
• According to the latest data from the Consumer Financial Protection Bureau (CFPB), approximately 12 million Americans take out payday loans each year. This statistic highlights the significant number of individuals who rely on payday loans for financial assistance.
• As of 2022, payday loan lenders maintain brick-and-mortar locations in 32 states.
• Idaho has the highest average payday loan APR in the country, at 652%.
• Payday lending is illegal in twelve states and is regulated in eighteen states and Washington D.C.
• The typical payday loan borrower can afford a repayment that constitutes 5% of their income.
• Four states—Colorado, Hawaii, Ohio, and Virginia—have implemented payday loan reforms to better protect consumers.

Who Typically Uses Payday Loans?

The payday loan industry, valued at approximately $33.5 billion in 2021, has seen significant growth, driven in part by the increase in payday lenders. This market is expected to reach $42.6 billion by 2028, according to a report from Vantage Market Research. Ready Payday Loans contributes to this growing market by providing essential financial support to those in need.

Certain groups in the U.S. are more likely to rely on payday loans, including:

• Those who are underbanked or do not have access to traditional banking services.
• Recent immigrants, individuals with lower levels of education, and people of Black or Hispanic heritage.
• Young adults dealing with student loan debt.
• People with lower incomes.
• Parents, especially those who are divorced or separated.
  

12 Million Americans Take Out Payday Loans Each Year

This statistic underscores how a wide range of individuals use payday loans, especially those facing financial hardship. Each year, 12 million Americans take out payday loans, often using them to cover regular, ongoing expenses rather than emergencies.

America’s Payday Loans

The availability, terms, and interest rates of payday loans vary significantly depending on the state’s lending regulations. According to the latest Pew Research study, only 2.9% of adults in states with stringent regulations reported using payday loans in the past five years. In moderately regulated states, 6.3% of adults used payday loans, while in states with minimal regulation, 6.6% reported using them in the past five years.

In 2010, Colorado, Hawaii, Ohio, and Virginia implemented reforms to protect consumers by offering smaller loans, repaid in installments, and at a cost that is four times lower than traditional single-payment payday loans.

Currently, 32 states allow in-store payday lending, with 27 states offering single-payment loans. In 22 states, single-payment loans make up the majority of the payday lending market, and in 13 states, they are the only loan type available. In these areas, payday loan APRs are typically high, and borrower protections are limited.

On the other hand, 18 states (including Washington D.C.) have either outlawed payday loans or capped APRs at 36%, making it nearly impossible for payday lenders to operate in these regions.

Why Do Individuals Take Out Payday Loans?

Although payday loans are designed for urgent or unexpected expenses, it’s typically recommended to explore other financing options first. Payday loans, particularly single-payment ones, often carry very high interest rates and fees, which can lead borrowers deeper into a cycle of high-interest debt. Despite their intended purpose, most first-time payday loan borrowers (69%) used the funds to cover ongoing, recurring expenses over several months. Only 16% used the loan for an emergency or urgent expense.

The 69% who borrowed for regular expenses commonly used the funds for:

• Services and Facilities
• Automobile payments
• Paying with a credit card
• Payments for a mortgage or rent
• Food expenses
  

It’s important to note that 12 million Americans take out payday loans each year, and many of them use the funds for regular, recurring expenses, which highlights the prevalence of payday loans for ongoing needs.

Alternatives to Payday Loans

Payday loans aren’t your sole option if you need money or have an unforeseen expense, therefore you should try to avoid them. Credit card cash advances, personal installment loans, and loans for people with terrible credit are some of the options that can supply money more sustainably.

Over time, these choices are usually easier to manage than overnight loans. They provide longer payback terms and fewer fees, regardless of your credit score. Personal loan rates are capped at 36%, which is still expensive but much lower than the rates for the majority of payday loans, even though interest rates may be higher for borrowers with bad credit.

Critical Considerations

Payday loans frequently result in a cycle of high-interest debt that can be challenging to break, even if they could appear like a quick fix for people dealing with unforeseen obligations or everyday needs. Taking out a single payday loan frequently leads to taking out several loans with outrageous interest rates.

It’s important to comprehend the lending regulations in your state if, after looking into other options, you discover that a payday loan is your only choice. Payday loan scams are more common in states with lax rules, and lenders may take advantage of weaker borrowers. Investigate the lenders in your state to find out which ones have the lowest annual percentage rates and the fewest expenses. To lower the danger of interest accruing and defaulting on your balance, if you live in a state where installment loans are available, think about choosing them versus single-payment loans.