Payday loans are used by approximately 12 million people across the United States on a yearly basis. Some people who use payday loans only use them once or twice per year, however some do use them on a more regular basis.
- 6% of adults across the United States have used payday lending in the last 5 years, with the majority of these people being between the ages of 18 and 24.
- 91% of all payday loans are taken out by people who have previously used payday loans to make it until their upcoming payday.
- Payday lending has become that popular that during 2017, there were more payday lending stores in the United States than McDonald’s restaurants.
What Is a Payday Loan?
Payday loans are short term and high risk loans. This type of loan is designed to provide emergency funding in unprecedented circumstances. The borrower can apply for a payday loan to finance funerals, emergency medical bills or house repairs that they had not originally budgeted for.
Payday loans are not designed to finance alternative debts and should never be used for unnecessary spending. Typically, payday loans range between $300 and $1000 however some lenders can offer additional funding.
In order to obtain a payday loan, the borrower must be over the age of 18, have a valid bank account and a source of income which can be verified. Payday loans should last the borrower only until their upcoming payday, when the loan should be repaid in full. In addition to repaying the loan, the borrower will be charged a fee for the loan which should also be repaid.
Who Uses Payday Loans?
Payday loans are typically used by people on a low income wage, people living pay cheque to pay cheque or those facing a temporarily emergency or shortfall in cash. This is because they are unable to finance unexpected circumstances which they have not already budgeted for.
91% of people who take out a payday loan have been reported to have used payday loans to make it until the end of the month in the past. Payday loans are supposed to be paid off at the end of the month when the borrower received their monthly income whether this be through work or alternative funding.
In spite of this, many people relying on payday loans to last until the end of the month struggle to repay their loan in full with the added fee for taking out the loan, meaning it will roll over onto the next month.
When a loan rolls over, there will be increased interest as the borrower was expected to pay off the loan at an earlier date. This means those who rely on payday loans can become caught in a vicious cycle and owing an excessive amount of interest on what was originally a small sum of money borrowed.
What To Be Aware Of Before Taking Out a Payday Loan
Before you take out a payday loan, you should be aware of the consequences of not repaying it on time alongside the impact that this can have on your credit score.
Many people who take out payday loans struggle to make the repayment, especially with the additional interest or fees for taking out the loan. In addition to this, taking out a payday loan or failing to repay it could be detrimental to your credit score, which could then impact your ability to get a mortgage in upcoming years.
You should also be aware of the dates by which you will have to repay your loan to avoid missing any repayments accidentally. If you have any doubts, you should contact a professional for advice surrounding your application.