Where Do People Get Payday Loans?
Payday loans are offered by payday lenders, most of which are found in brick-and-mortar locations in cities and towns throughout the United States. The most recent payday loan statistics show that payday loan lenders are available in 36 states, although the percentage of use in each state varies significantly. Some states only see a 1 percent use rate, while others are upward of 14 percent among residents.
Part of the disparity between use among borrowers in certain states is the difference in laws and regulations meant to oversee payday loan practices among short-term lenders. However, online payday lenders are more likely to deceive customers when it comes to interest rates, costs of borrowing, and repayment agreements, so buyer beware.
- Louisiana – a 10% loan use rate among residents, with a $350 loan limit
- Missouri – an 11% loan use rate among residents, with a $500 loan limit
- Oklahoma – a 13% loan use rate among residents, with a $500 loan limit
- Washington – an 11% loan use rate among residents, with a $700 loan limit
Alarming Payday Loan Trends
While payday loans are prevalent among the states that offer them, they come with many drawbacks of which consumers need to be aware. Payday loans are discouraged among borrowers because of the excessive fees and high interest rates charged. The cost of taking a single payday loan is far higher than alternatives, including cash advances from credit cards or personal loans.
According to recent payday loan statistics, borrowers are also more prone to roll over a payday loan instead of paying off the balance due. A rollover means taking out a new loan-with new fees-to cover the payment for the original loan. This creates a disastrous cycle of debt for borrowers who cannot easily afford it.
- The average payday loan has $520 in fees for borrowing $375 initially
- The average fee a payday lender charges is $55 per a two-week loan
- The average payday loan requires a payment of $430 from the next paycheck, equating to 36% of a borrower’s gross pay
- Nearly 80% of payday loans are taken out within two weeks of paying off a previous payday loan
- 75% of payday loans are taken out by those who have previously used a payday loan in the past year
Alternatives to Payday Loans
Many people who borrow payday loans are unaware that they may qualify for alternatives with lower fees and extended repayment terms. Some of these options include credit card cash advances, personal installment loans, personal lines of credit, and bad credit personal loans.
While credit card cash advances often have double-digit interest rates, they can be beneficial in covering small, short-term financing needs without a short repayment obligation.
Personal loans often have single-digit interest rates, and can offer a fixed repayment schedule and minimal additional fees for qualified borrowers.
Personal lines of credit work similarly to credit cards, but they may come with a lower interest rate than a cash advance, albeit higher than a personal loan.
Payday loan statistics paint a relatively grim picture of the short-term lending marketplace for borrowers in need. However, many individuals who use payday loans appreciate their convenience and quick turnaround time, as well as the fact that there is no credit check needed to qualify.
Before taking out a payday loan, it is crucial to understand how much it will ultimately cost and your ability to repay the loan without getting into a cycle of debt from paycheck to paycheck.
- Financial emergencies