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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.

By MSN Money Partner Jul 23, 2012 9:56AM

This post comes from partner site on MSN MoneyPayday 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.


Image: Woman with paperwork (© Getty Images)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.

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Jul 23, 2012 3:24PM
I will say this, I use to work for a PayDay company and people use them for everyday expenses and emergencies. But what may be a emergency to you may not be to someone else. Things like kids needing school clothes, getting extra money for Christmas, going on vacation were some of the reasons people used payday loans.
Jul 23, 2012 5:36PM
I work in a bankruptcy attorneys office.  We are seeing more and more of this kind of loan as the cause of the bankruptcy.  With effective interest rates of up to 685% ( no exaggeration, I have the truth in lending disclosure made to a client) once the loan starts, there is no way a person of limited resources can hope to catch up.  In addtion, many of the lenders secure their loans with checks drawn on accounts that all parties acknowledge are insuffcient at the time they are tendered.  While this is clearly a part of a credit transaction, many lenders actually attempt to use criminal laws to collect on the "bad checks"  after default.  In any other context, such aggressive and abusive collection practices would violate Federal and State laws.  This industry appears immune to such actions.  If you are at the point that you think you need such a loan, contact a credit counselor or bankruptcy counsel.  DO NOT USE A PAYDAY LOAN!
Jul 23, 2012 3:41PM
They are criticized because once you're in, it is really hard to get out of the cycle!
Jul 23, 2012 7:23PM
         It's very, very simple folks. You must live with-in your means! If you haven't abused a friend or family member financially, borrow from them, BUT ONLY  IF YOU HAVE TO !!!!  This is not to misunderstand my beginning statement only if you have no choice in the matter. But ask yourself this question. HOW did I get myself  into this position anyeay? Have I been dining out more than once a month? Did I skip paying a utility last month? A car repair came unexpectedly? i bought an expensive wedding gift for a friend? Plan ahead, budget your money. Avoid paying late fees to banks or C.C. Co.s You have to do belt tightening and be free, or fall into a trap by these legal "LOAN SHARKS". The choice is yours people. Don't be a slave to the BANKS or the LOAN SHARKS ! 
Jul 23, 2012 5:47PM
Some people don't seem to get the basic facts that 1) you can't live beyond your means (for long) and 2) you can't borrow your way out of debt.
Jul 23, 2012 6:48PM

 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.

Jul 23, 2012 5:35PM
These companies are thieves when they charge the interest they do. My son is still fixing his credit due to the fact his ex used companies like this. Luckily he didn't sign his name on the contract, but till she ruined his credit with utilities and rentals that were in his name. These companies should be banned all together.
Jul 23, 2012 5:44PM

When you are desperate for the cash, sometimes you gotta do what you gotta do. But you should have a  plan of action to pay it back as soon as possible. The interest rates will put you into further debt.

Jul 23, 2012 8:47PM
Have you people heard of free will and free markets. Let people decide how they handle their finances. Frankly, it's none of your damn business.
Jul 23, 2012 5:46PM

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.


Jul 24, 2012 8:23AM
Payday loans are given by companies who are engaged in loansharking. The interest they charge is usurious and traps people into a trap that can be very difficult to escape. The lenders claim they are just providing a service, so is the neighborhood drug dealer.
Jul 23, 2012 7:00PM
I know a guy who uses these. He has 3 out right now. The company sets up auto draft every month and if he can't ( and normally doesn't) pay in full they take out 300 dollars as a "fee" and renew the loan. He's made about 4 of these type of payments because  he can never get enough money to pay off the original loan amount of  $250.00. It's ridiculous, but what's a guy to do if he needs to pay his utilities? He's basically going to pay the rest of his life if he continues down this roadl. I've suggested bankruptcy as a way out, but he's too proud. I don't condone BK but if you ever want to get your financial footing back IT may be the only way to get a fresh start granted you fix what got you in trouble the first time.
Jul 23, 2012 3:28PM
What are people expected to do?  Banks in the long run will charge more for interest than a payday loan.  With the economy the way it is, people are desperate.  A bank will charge you  $35.00 for being 7 cents over the limit.  If we keep going in like this we ALL are in real big trouble.  When you are hungry or need electricity what are you supposed to do?  These last 3 years have been hell.
Jul 23, 2012 11:18PM

If you are in a hole, stop digging!

These payday loans are nothing but loan sharking.

Jul 24, 2012 2:20PM
Sadly i had to do it today. Borrowed $200 and pay back $230...i would rather pay back $30 then to tell my kids we didn't have food tonight when they are hungry.  When you have no other option, but to survive...its to borrow or steal and i was raised not to steal. So don't knock it unless you know what the situation of the person is in when they have to borrow.
Jul 24, 2012 8:19AM

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.

Jul 24, 2012 7:53AM
Sure! They  take advantage of the poor low income wage earners.  I know people who have fallen into these payday loan traps. They have a heck of a time trying to get out of it.
Jul 24, 2012 7:26AM
I will pick crap with the chickens before i borrow from legal loan sharks .
Jul 24, 2012 11:14AM
BAD IDEA for so many reasons. They make it seem so easy, and it is. Too easy. It's too easy for people who aren't financially disciplined to keep borrowing money, getting themselves deeper in debt, and driving their credit rating down. Stay away from payday loans!
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