A payday loan is a financial bridge to most of those who use it. The payday loan becomes the “bridge” to paying everyday expenses as well as financial emergencies. Payday loans are used for paying rent and for buying groceries, as well as for emergency car repairs and medical expenses.
Why People Apply for Payday Loans
An average of 7 out of 10 people not only use but rely on a payday loan or a cash advance for everyday expenses. These payday loans are not used as one quick fix. Many borrowers seek extensions and tend to keep borrowing the same amount over and over again. This phenomenon keeps these people in debt for months. These are very high-cost interest loans that can grow to large amounts if not paid off immediately.
Many people are turning to payday loans as a financial bridge to get from one paycheck to the next. A payday loan can be a great option for millions of Americans who hope to manage their financial obligations.
Who Gets Payday Loans Most Often
About 12 million Americans get payday loans each year. Typical customers of payday loans are parents, divorcees, and of course people with low-income.
Parents are more likely to use a payday loan than adults without children. The annual income of these households is usually less than $50,000. Also, divorcees are more likely to use a payday loan than married couples or single people. The vast majority of people that use a payday loan do not have a 4-year college education and earn less than $40,000 a year.
More than a half of female from 25 to 45 years use payday loans regulary. Payday loans are also becoming a household name for the low income, no credit consumer.
What Are the Terms?
The loans that are granted are not for a large amount of money. The typical loan is between $100 and $500 and the lenders fee is usually around $15 for every $100. The duration of the loan is up to two weeks.
However, most of the consumers utilizing a payday loan take out about eight loans a year, so they are actually in debt most of the year. These consumers pay about $520 per year as an interest rate, so the payday loan is similar to a high-interest line of credit and not just a one-time fix.
As you can imagine, most people who use a payday loan do not realize how much money and debt they are getting into. The payday lenders are disclosing the terms and conditions of their payday loan.
However, the borrowers are in such haste to receive the instant cash, that they do not internalize the costs or how it will affect their budget. The borrower gets extra money and the cycle of high interest and debt continues for months.
A payday loan, if used as intended, is the least expensive option with the easiest requirements. If the prospective borrower has too low of an income than the borrower should not use this type of loan.
In any case, the prospective borrower needs to be educated in the ways of the payday loan to have a good experience and use the loan in the way it was intended, no matter is it short-term or temporarily.