Every year, 12 million Americans take out payday loans. Over the last five years, around 6% of adults in the United States have used payday loans, and this figure is expected to rise further. Payday loan costs cost the economy $9 billion per year.
Payday lending gives Americans a cash advance on their next salary. Payday loans have grown in popularity over the previous decade, and there are over 23,000 payday lenders in the United States as of 2020.
What If I Can’t Get A Payday Loan?
Payday loans come with conditions and are not suitable for everyone. Perhaps you are aware that you will have difficulty adhering to your repayment agreement, or you do not wish to incur further debt at a high interest rate. If this is the case, there are other options for obtaining finances that you could examine.
You might ask your friends and relatives for a personal loan, which is usually more flexible than a loan from a lender to lots of borrowers!.
You could seek your workplace for financial aid, namely a cash advance.
You might look at your expenses and decide to create a new budget, perhaps with the help of a smartphone app like Honeydue.
If you are in severe need of money and are unsure what to do, you could contact a financial expert for assistance in making the best and most educated decision.
How Much Money Can I Borrow?
The maximum amount one can legally borrow through a payday loan is $35,000, with loans starting at $100. The amount you can borrow can vary based on your state of residence and your financial background.
While some states have outright prohibited payday loans, others have imposed borrowing limits. California has a loan limit of $300, Louisiana has a limit of $350, and Oregon has a limit of $50,000.
Your credit history also influences how much money lenders are ready to lend you. If you have a track record of paying off bills and debt, you will be more appealing to lenders and will most likely be approved for a larger loan.
- financial difficulty
- You should be aware of the implications of failing to repay loans.
What Do Americans Spend Their Loans On?
Payday loans are designed to assist you in the short term when you are faced with unexpected and/or urgent expenses. These loans are typically used to cover urgent medical or dental bills, house emergencies, automobile damage, or other required costs.
You cannot use payday loan money on anything illegal, and it is usually illegal to gamble with a lender’s money.
Payday loans should be avoided if you have a lot of debt with regular payments. Because the interest on these loans is quite high, it will become a more expensive method of debt repayment.
You should also avoid them if there is a high likelihood that you will be unable to repay the loan. Payday lenders are stern when it comes to people who fail to make payments, and you should avoid further troubles if you are unable to repay.
Statistics on Payday Loans
Payday loans are used by 12 million Americans each year, according to Credit Summit. In 2017, there were about 14,300 payday lending outlets in the United States.
The average payday loan is $375, with typical borrowers earning $30,000 per year.
It’s also been revealed that more than half (58%) of payday loan borrowers struggle to meet their monthly expenses, with only 14% able to afford loan payments.
These figures highlight the need of borrowing only when you can afford it. While you will not go to prison for not repaying a payday loan, you will most likely face fines such as the following:
- Fees for late payments.
- Your credit rating will suffer as a result.
- Access to future finance and loans.
- Borrowing may become more costly in the future.
- Learn more about what can happen if you don’t make your payday loan payments on time.
What Is the Recurrence Rate of Payday Loans?
75% of payday loan customers have already utilized this type of borrowing. A stunning 80% of payday loans are taken out only weeks after borrowers have completed repaying a previous payday loan, with 7 out of 10 payday loan users borrowing for recurring expenditures such as rent and other regular obligations.
Payday loans are not intended for such frequent and long-term use. These types of loans should only be utilized for one-time purposes, such as when your car breaks down and you need it repaired before your next payday.
Before taking out any type of loan, be sure the financial product you’re asking for is best suited to your financial position, and get the support you need if you’re having long-term financial difficulties.
Why do so many Americans take out payday loans?
The majority of payday loan customers make a mistake in their utilization of this form of borrowing. They are either not taking the essential safeguards before deciding on this loan, or they are borrowing for the wrong reasons – or both.
- Failure to Take Necessary Precautions
Because payday loans are so widely used in the United States, it is evident that borrowers are not taking the essential measures. This form of loan should be taken only if you have a consistent source of income that will allow you to repay it. However, more than half of payday loan borrowers are unable to make their monthly obligations. If you are not financially solid, a payday loan will not be of assistance to you. According to statistics, only 14% of borrowers can afford to repay their payday loans.
- Borrowing for the Wrong Reasons
Payday loans are frequently pricey and should only be used for one-time circumstances. Millions of Americans are not using payday loans as they were intended – for short-term and unexpected expenses. Emergency car repairs, hospital or veterinary expenditures are some examples of situations where a payday loan might be considered. However, 70% of individuals who take out payday loans use them for routine recurrent needs such as rent and utility bills rather than for emergencies. Some debtors utilize payday loans to settle other loans, which should never be done.
What Is the Repercussion?
The consequences of so many Americans taking out payday loans are widespread. Because of the hefty fees, a payday loan may only solve financial problems in the short term, with money problems returning later on. The most significant economic impact of using a payday loan could be falling into a debt cycle. Three-quarters of payday loans are obtained by persons who have previously used them. Not only that, but 80% of payday loans taken out in the United States are taken out within two weeks after repaying a previous payday loan.
If you’re unsure whether a payday loan is right for you, see our guide, Is A Payday Loan Right For Me?