American consumers are no strangers to debt, as an estimated 80 percent of individuals owe money to a lender each month.
Payday loans are the most common type of short-term, unsecured lending, offering borrowers advances on their next paychecks.
Loans in this category are offered by certain lenders, most of which have a small storefront in neighborhoods throughout cities big and small. While payday loans can be beneficial in providing access to quick cash, they come with some alarming costs—and in some cases, predatory lending practices.
It is beneficial to understand payday loan statistics and how this form of short-term lending impacts American borrowers in both the immediate and long term.
On this page:
- What Are Payday Loans?
- Who Uses Payday Loans?
- What Are Payday Loans Used For?
- Alarming Payday Loan Trends
- Alternatives to Payday Loans
What Are Payday Loans?
Before diving into payday loan statistics, it’s helpful to first define what payday loans are and how they differ from other forms of short-term lending. A payday loan is meant to cover living expenses from one paycheck to the next for the borrower, making them short term.
Loans from payday lenders are usually between $500 and $1,000, based on the borrower’s pay amount, and they are intended to be repaid from the borrower’s upcoming paycheck, typically within two weeks. There is no credit check performed to qualify for a payday loan. However, payday lenders require verification of employment and income, as well as valid identification to be eligible.
Payday loans differ from other types of short-term lending, such as a credit card cash advance, mainly because of the fees involved and short repayment period. Borrowers who use a payday loan to cover immediate expenses pay more than they would if they used an installment loan with a longer repayment timeframe or a credit card cash advance.
Read More: How Do Payday Loans Work?
Who Uses Payday Loans?
According to the most recent statistics on payday lending in the United States, short-term payday loans are utilized by borrowers from all demographics and regions of the country. However, the average borrower earns an estimated $30,000 per year, and nearly 58 percent of these borrowers find it difficult to meet their monthly expense obligations.
Each year, 12 million Americans use payday loans to cover cash flow issues from pay period to pay period, and they pay more than $9 billion in loan fees to do so. On average, a payday loan borrower is in debt for five months out of the year, mostly due to short-term loans.
- Number of payday loan borrowers each year: 12 million
- Average income for payday loan borrower: $30,000 annually
- Percent of borrowers who cannot easily cover monthly expenses: 58% (this includes those who are currently on government aid or social security benefits)
Source: Payday Loan Facts and the CFPB’s Impact
What Do People Use Payday Loans For?
Payday loans are intended to be used to cover unexpected expenses, like a vehicle repair or medical bill that throws a wrench in a borrower’s financial life. However, seven out of 10 payday loan borrowers may also use this short-term financing to pay for expected bills each month, including utilities, car payments, or other debt obligations.
Payday loan statistics highlight the common uses of payday loans as follows:
- Routine living expenses like gas and groceries
- Mortgage payment assistance
- Car payments
- Credit card payments
- Utilities
- Financial emergencies
Source: Payday Loans: Who Uses Them and Why?
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. There are also online payday loan lenders operating throughout the country. 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.
Here are a few of the use rates and payday loan statistics in the most prominent lending states:
- 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
Source: State Payday Loan Regulation and Usage Rates
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.
Here are a few specific payday loan statistics that highlight these common issues:
- 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
Source: CFPB Data Point: Payday Lending
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.
Bottom Line
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.