Here’s a breakdown of payday loan demographics by parental status. Parents are more likely to get payday loans than non-parents.
|parental status||Percentage of having used a payday loan|
Payday loans in the United States
Payday loan rates and terms can vary significantly by state. Some states don’t even allow payday lenders, as these lenders can sometimes be debt traps. In states where payday loans are allowed, one of three levels of regulation may apply.
Permissive states allow high lender fees and APRs and generally have the fewest restrictions. Hybrid states tend to have more restrictions, either with rate caps, restrictions on loans per borrower, or allowing borrowers more payment periods to repay the loan. Restrictive states do not allow payday loans or have a 36 percent APR cap, making it virtually impossible for payday lenders to set up shop in these states.
Payday loans are most common in urban areas and the Midwest, with 7 percent of urban residents and 7 percent of Midwestern residents using them.
Why do people use payday loans?
Payday loans are meant for emergency or unexpected expenses, and it’s generally best to avoid using them for anything else if possible. If someone lives paycheck to paycheck and falls behind on bills, a payday loan to cover purchases or rent may seem like a great idea. Unfortunately, the fees these loans incur are often higher than the loan itself, forcing borrowers further into the cycle of debt.
However, the majority of payday loan borrowers, 69 percent, use these loans for regular expenses.
Payday loans are commonly used to pay for:
- car payment
- I pay with credit card
Payday Loan Alternatives
If you’re in a tight financial spot and want to borrow money fast, payday loans aren’t your only option. Payday loans tend to start a lending cycle, and borrowers are likely to overindulge with extremely high fees. There are several alternatives to obtaining a payday loan, including loans for bad credit lenders, credit card cash advances, and personal installment loans.
These options come with lower fees and longer payment terms. Credit card cash advances have high APRs similar to payday loans, but allow the borrower a longer period to repay the loan.
While personal loan interest rates will be higher for less qualified borrowers, personal loan rates are capped at around 36 percent, significantly lower than payday loans. Also, personal loan lenders tend to charge lower fees than payday lenders.
If you decide to shop around for a personal loan, be sure to research the current best personal loan rates and the best bad credit loans.
The bottom line
Payday loans can be extremely helpful for those struggling with unexpected expenses or falling behind on everyday expenses. Payday lenders lend money to people who may not qualify anywhere else. However, taking out a payday loan often leads to taking out more, leaving borrowers in a cycle of debt. Younger, low-income borrowers are more likely to get these loans, and people of color also tend to get payday loans at higher rates.
If you’re considering a payday loan, make sure you know the payday loan rules in your state and that you’re getting the lowest APR you can find in your area. Also beware of payday scams, as a lack of regulation in some states can lead to lenders taking advantage of borrowers. However, if you can qualify, getting a personal loan or credit card cash advance is a safer and less expensive option.