Payday loans have been increasing in popularity over the last decade, with 12 million Americans using payday loans each year.
Payday loans are a way to borrow money quickly to cover unexpected and urgent costs, but shouldn’t be used as a long-term solution to a financial problem.
Presently, high street loans are more popular among the younger generations, with the elder generation using them more sparingly.
- The majority of borrowers who use payday loans are low-income individuals making less than $30,000 per year.
- People often use payday loans if they have fallen behind on their monthly expenses, such as rent, utility bills, or car payments.
- Generation-X and Millennials are more likely to take out a payday loan.
- Senior citizens ages 70 and older are least likely to use this type of product.
Who Uses Payday Loans The Most?
Anyone can find themselves in need of some extra cash before the next pay check comes in. 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 product.
Those who haven’t completed a four-year college education are more likely to take out payday loans.
Why Are Younger Generations Using Loans More?
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.
When many members of Generation-X left education, they entered a very slow job market. The wages that these young people were earning were not enough to cover everyday expenses, and then their student debt added to what they owe.
- 52% of payday loan borrowers are aged 25-44.
- 9% of adults aged 25-29 have used a payday loan.
- Merely 2% of over 70s have used payday loans.
Why Do Lower Income Households Use Loans More Frequently?
People from lower income households tend to take out payday loans when they need funds as they cannot provide the collateral needed for other kinds of loan such as title loans. These other kinds of loan have lower-interest rates than payday loans which typically have a high interest rate.
Payday lenders realise that the only option for people from lower socioeconomic backgrounds may be to get a payday loan that has a high interest rate. This is why often, lots of payday lenders target younger people and those who are less stable financial position in their marketing.
Of course, the obvious is true – lower-income households will struggle more to make ends meet, and therefore they are more likely to require loans full stop.
What Exactly Is A Payday Loan?
Payday loans are loans designed to help borrowers in need of cash before their next payday. They are intended to be a short-term solution to a financial worry and not a way to deal with a long-term financial issue.
This type of loan can be a really useful tool if you incur some unexpected bills that need taking care of right away. These could be anything from medical bills to car repairs.
Basically, any situation where you need to access funds quickly can be a reason for accessing a payday loan.
Why Would I Need A Loan?
Hopefully you are financially stable and don’t need a loan at all. However, life can throw costs at you that you didn’t see coming.
Maybe you need to cover a medical or dental bill you hoped you wouldn’t have to. Maybe your boiler has broken, or your car needs fixing. All of these inconveniences require money. It is at times like these that you may find yourself strapped for cash and in need of a loan.
What If I Can’t Repay My Loan?
It’s really important to keep in mind the consequences that can occur if you fail to make your scheduled repayments.
Firstly, you can incur penalties and late fees from your lender, adding to the cost that you owe. Your credit rating can also be negatively impacted, making it significantly more difficult to be accepted for certain loans in the future. On top of this, your lender can set up wage garnishment – where part of your wages are paid directly to the lender.
In the most extreme cases where no reasonable payment plan can be agreed between lender and borrower, the lender may file a lawsuit. If this were to happen to you, it’s incredibly important to attend your court hearing.