As of 2021, the Payday Loans market was estimated to be worth roughly $33.5billion and used by over 12 million Americans, year-on-year.
Short-term and typically with high interest rates, payday loans are designed to give borrowers a quick cash advance to help tide them over to their next payday, or perhaps to cover an unexpected bill.
For Americans who have previously struggled to obtain a bank loan, payday loans can be a great option as they will typically cater for people who have weaker credit scores or a more complicated financial history.
Key Facts and Stats: What is the US Payday Loan Industry?
- The Payday Loans market was estimated to be worth roughly $33.5 Billion in 2021 and is expected to reach $42.6 Billion by 2028.
- Over 12 million Americans use payday loans every year, as of 2022, whether online or through brick-and-mortar loan stores, but the pandemic has seen growth in online lending practices.
- Payday loans are legal in 37 states but the regulation is far stricter in 9 of these – 55% of Americans live in the 28 states where payday loan laws are permissive and less regulated.
- Nebraska and Illinois are two examples of states that have heavier restrictions – the interest rate cap for payday loans in Chicago is set at 36% in each of these states, respectively.
What is a Payday Loan?
Payday loans are short-term loans for small-to-medium-sized amounts of money to help tide you over to your next payday.
Many state governments set different regulations on lending in their states. Borrowing $500 is a common loan limit although limits range above and below this amount. With Dime Alley, you can apply for a payday loan for up to $35,000.
The due date is typically two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement (Source: WeLendUs)
A payday loan is usually repaid in a single payment on the borrower’s next payday, or when income is received from another source such as a pension or Social Security.
To repay the loan, you generally provide the lender with authorization to electronically debit the funds from your bank, credit union, or prepaid card account. If you don’t repay the loan on or before the due date, the lender can cash the check or electronically withdraw money from your account.
Who Uses Payday Loans?
Anyone can find themselves in need of some extra cash before the next pay check comes in, and in fact, 12 million Americans use payday loans each year. Payday loans are a great way for people to buffer their expenses with extra funds before payday.
People ages 25 to 49 are more likely to use payday loans companies compared to other age groups. Senior citizens ages 70 and older are least likely to use this type of financial product.
Despite the widespread use of payday loans in America, Generation-X and Millennials are more likely to take out a payday loan. A driving factor in this statistic is the student debt that has likely added up from the student loans these people took out.
What are Payday Loans Used For?
Payday loans are ideally used for short term emergency expenses, including paying urgent household bills, repairs, car fixes, medical bills, paying rent and even paying off other pressing debts.
Because of the expensive nature of these loans, payday loans are not designed for frivolous or unnecessary spending and should only be used if you need urgent access to funds.
Instead, the concept is that you receive the money upfront to help pay off your immediate pressing bill, and then you can receive you pay check from work at the end of the month and pay off the loan. And that is the ideal purpose of a payday loan!