Payday loans or cash advances, are thought to be used only for emergency situations. Honestly, considering the extremely high annual percentage rate (with APRs that on average range from 36-46%), cash advances or salary loans as they are sometimes called should be used in only the most dire of emergencies. The sad truth is that most borrowers who take out a payday loan, are not people suffering underneath sudden hardships but rather people borrowing to cover everyday expenses that are part of their routine living. The problem with this, is that eventually the allure of quick cash from a payday loan will end up snowballing into a monstrous amount of debt that the borrower will not be able to escape from.
So who is actually using these payday loans? What are the demographics that make up the customer base for payday loans industry that has a multiple billion dollar booming industry?
Well, a study done by The Pew Charitable Trusts suggest that “Most payday loan borrowers are white, female, and are 24 to 44 years old. However, after controlling for other characteristics, there are five groups that have higher odds of having used a payday loan; those without a for-year college degree; home renters, African Americans; those earning below $40,000 annually, and those who are separated or divorced.”
Of course, since most of these people borrowing money from these cash advance lenders are using the money just to cover ordinary expenses, they ultimately end up being in indebted for an average of five months of the year before being able to pay off these small loans that balloon into big payments thanks to the very aggressive annual percentage rate.
The study by Pew is also reflected with the study done by the Federal Deposit Corporation, also known as FDIC, in a study they performed back in 2011. The FDIC study found that recent immigrants, black and Hispanic families, and of course single parents were the biggest users and customer base for payday loans.
Another common trend amongst payday loan users and borrowers is that their annual income tends to be lower than $40,000 a year. This makes sense, considering most USA cities it becomes very difficult to make a living on less than $40,000 dollars a year.
According to the Texas Office of the Consumer Credit Commissioner which collected data in 2012 around cash advance users, they found that refinances accounted for $2.01 billion dollars in loan volume versus the the $1.08 billion in initial loan volume. What does this mean? It means that more people are getting more into debt with their payday loan just trying to pay it off then they were before taking out the initial payday loan.
That should be a tell-tell sign with how dangerous a payday loan can be for someone looking to take one out for their personal hardship. If you are looking to get a payday loan, make sure you first fully understand what you are getting involved with first. If possible, make the idea of a payday loan the LAST option and explore other options first so you do not end up just snowballing your debt to a ridiculous level.
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