Payday loans used for basic expenses
A new study says borrowers typically obtain payday loans to cover regular living expenses rather than an emergency expense.
This post comes from partner site Credit.com.
Payday lending has long been a controversial topic in the financial industry because of both whom the financing targets and the costly terms usually associated with it.
About 12 million people -- 5.5% of all Americans -- take out payday loans every year, averaging eight loans of $375 each time, according to new research from the Pew Charitable Trusts. The combined $3,000 of those eight loans also costs them an additional $520 on interest annually.
In general, most consumers who tap payday lending to finance various aspects of their lives are white, female and between the ages of 25 and 44, the study found. Other demographics more likely to take out payday loans are people without a four-year college degree, those who rent homes, those earning less than $40,000 per year, those who are either separated or divorced, and black Americans. (Post continues below.)
Borrowers typically obtain payday loans to cover regular living expenses -- 69% used them to cover utilities, credit card bills, food or housing -- rather than an emergency expense, the report said. Only 16% of borrowers used them to finance unexpected medical or auto repair bills. On average, people taking out this type of financing carry debt for roughly five months of every year; the typical borrower's eight loans typically last 18 days each.
Also it seems that having payday loans as a source of financing may lead borrowers to avoid financial tactics that could help them improve their situations in the long term, the report said. Among those who tapped this type of credit, 81% said that if they did not have access to payday loans, they would cut back on expenses.
However, large numbers also said they would put off paying bills, borrow from friends and family members, or sell possessions. Just 44% would seek financing from a bank or credit union, 37% would use a credit card, and 17% would borrow from their employer.
Payday loans are often criticized as being hazardous for consumers because of the high interest rates involved and the requirement that they be paid back in a relatively short period of time.
More on Credit.com and MSN Money:
- Octomom the latest to endorse payday loans
- Do you have a good interest rate?
- The 411 on getting a personal loan
- Banks' payday loans under fire
- How to escape the payday loan trap
- Find a better credit card
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going in debt is not the answer. the bills would wait or they could reposes what they wanted. it is that simple. i would not complicate my life further by growing more debt. i would do what ever errand i could do to earn extra cash, wash and detail neighbors cars, mow lawns, walk dogs, wash windows, drive a cab on weekends, pick trash and sell stuff , but going further in debt to pay debt is out of the question.
. been there done that and don't want to be there again. you do what ever you have to do to not be in debt.
being debt free is freedom.
People just need to live within their means and not have cadillac taste with a vw paycheck. You'll never get ahead in life with excessive debt. My husband and I don't use all our credit cards and pay off the ones we do have each month. We are in our 50 and 60 so we have learned to pay ourselves first and pay bills on time with more than the minimum payment due no matter what. We've been trying to sell our condo and upgrade to a house for 3 yrs. We're still in the condo and waiting since we're not in the situation where we have to sell. Hopefully this spring will be our time it sells, fingers crossed.
I have thought about doing it before. However, when I stopped to think about it I changed my mind. If I got a 500 advance then that woud be 500 taken of the next check. Since you need groceries every month, and the bills are due each month then you will be constantly running short. The best option I can say is for people thinking about doing this. Is to see what you can cut back on and do your best to live within your means. If you need to let the cable go, then so be it. There isnt much on worth watching anyway. Also most utility companies will work with you if you contact them. Even more so in the summer when it is blazing hot. Now I could understand if it was an emergency. Something that wouldnt happen again the next month. Something that once taken care of wouldnt crop up again for a while. For instance, a couple of tires for the car. For me and mine I would say no don't do it. If you choose to and you can make it work for you. More power to ya.
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