15+ Payday Loan Statistics

10.04.2021
Arnav

Even if you’ve never needed one, you probably have heard of payday loans. These ultra-short-term, high-interest loans are the only source of immediate funds for many cash-strapped Americans. However, as these payday loan statistics show, there’s a lot that one needs to be cautious of when using this financial service. The payday loan industry provides an essential service to people in need and without the means to source funds from other traditional avenues. At the same time, its fundamental nature can prove predatory if borrowers overlook the risks. These stats and the following FAQ will hopefully build your awareness of this service and prepare you to better utilize it without falling into a debt trap.

Payday Loan Statistics (Editor’s Choice)

  • On average, payday loan users spend $520 in fees to borrow $375.
  • The odds of payday loan usage are 62% higher for those earning less than $40,000 annually.
  • People in the 25 to 49 age group are much likelier to use payday loans.
  • The APR interest on a $300 payday loan in the US can be as high as 664%.

The average payday loan default rate is 6%, the same as the typical credit card default rate.

General Payday Lending Statistics

1. Three out of 4 payday loans go to borrowers who take out 10 or more loans per year.

A large part of the payday loan economy can be predatory, targeting underbanked or low-income individuals with extremely high-interest rates. As a result, borrowers often fall into a debt trap, which means that they keep having to borrow repeatedly to pay back what they owe.

(CFPB)

2. 15% of new payday loans start a 10-loans long sequence.

Half of all outstanding payday loans in the US are further part of a sequence that is at least 10 loans long. Statistics about payday loans show that this constant rolling over of loans to repay past ones, which keeps adding to the fees, contributes to the bulk of the revenue of lenders.

(CFPB)

3. The average lump-sum payment uses up 36% of the borrower’s paycheck.

Imagine being cash-strapped and desperate enough to take a loan at a 400+% interest and then being forced to use up your next paycheck to repay it. It’s no wonder then that so many borrowers cannot repay the full payday loan amounts and end up having to borrow again.

(Pew Charitable Trusts)

4. Nearly 70% of payday loan users borrow to cover a recurring expense.

Among the widely believed payday loan facts is the notion that these short-term loans are meant for emergencies. However, studies have found that most payday loans in the United States are used to cover regular expenses like utilities, credit card bills, food, rent, or mortgage. Only about 16% use them for unexpected expenses such as car repair or medical emergencies. 

(Pew Charitable Trusts)

5. Consumers fork out $520 in fees on average to borrow $375.

The average payday loan user is in debt for five months of the year. This is because taking out a single loan does not solve the payment needs of many borrowers. Payday loan statistics further show that the high fees—an average of $55 for two weeks, the typical term for a payday loan—mean that any delay, rollover, or additional borrowing adds substantially to the debt burden.

(Pew Charitable Trusts)

6. The annual percentage rate (APR) on a $300 payday loan can be as high as 664%.

Payday loan rates by state can vary substantially. Apart from the states that have prohibited payday lending altogether, some have implemented interest caps on short-term loans. In states with no such caps, however, consumers can end up paying through their nose. Payday loan statistics by state show that jurisdictions with typically high APRs include Texas (664%), Utah, Idaho, Nevada (652%), as well as Mississippi, Montana, and North Dakota (521% to 527%).

(Center for Responsible Lending)

7. 81% of payday loan users say they would cut back on expenses if such loans were unavailable.

Many would also delay paying some bills, take help from friends and family, or sell personal possessions. So, while other options are available, the availability of funds makes many people overlook the exorbitant payday loan interest rates and fees. While not all such loans are harmful, they often can be.

(Pew Charitable Trusts)

Payday Loan Demographics

8. The odds of payday loans usage are 62% higher for people earning less than $40,000 annually than those earning more.

Payday loan user statistics show that typical borrowers are people in more precarious financial situations. The odds of payday loans usage, therefore, are 57% higher for renters than for homeowners, 82% higher for those with some college education (or less) than for those with a four-year degree, 103% higher for separated or divorced individuals than for those with other marital statuses, and 105% higher for African Americans than for other ethnicities. 

(Pew Charitable Trusts)

9. People in the 25-49 age group are much likelier to use payday loans.

The highest likelihood based on payday loan user statistics is in the 25 to 29 group. This is when people are starting a family and have relatively lower incomes to take care of the many growing responsibilities. The odds are relatively low in the 18 to 24 group and start falling again for people 50 and above. People above 70 are the least likely to use payday loans in the US.

(Pew Charitable Trusts)

10. Payday loans usage is the highest in the Midwestern USA and urban areas.

Of course, even within regions, payday loan interest rates by state can vary depending on regulations. On average, 7% of residents in the Midwest use such loans. The figures for the South, the West, and the Northeast are 6%, 6%, and 3%, respectively, according to payday loan statistics by state. Similarly, 7% of urban residents and 6% of exurban and rural citizens use payday loans. The figures for small towns and suburban areas are 4% and 3%, respectively.

(Pew Charitable Trusts)

11. 44% of US military service members used a payday loan at least once in 2017.

This wide variance with the average numbers for the general population can be attributed to the larger number of young people in the services and the absence of strong established credit. This percentage of payday loan users is likely to have come down a bit because of federal and state government measures to protect military personnel from predatory lending.

(Federal Reserve Bank of St. Louis)

Payday Loan Industry Statistics

12. There are about 23,000 payday lenders in the US, twice the number of McDonald’s outlets.

A slightly over-quoted piece of data but interesting regardless. The availability of US payday loans is remarkable considering that several states do not even allow payday lending currently or have caps on payday loan interest rates and fees. While most statistics show a negative growth of payday loans from storefronts, the industry’s overall size is increasing because of the growth of online lending.

(Center for American Progress)

13. Fintech loans’ share of unsecured personal loan balances grew from 5% in 2013 to 38% in 2018.

Payday lending statistics show that this type of unsecured personal loan is also readily available through apps and websites. This easy availability of cash without the need for security or strong credit proves particularly enticing for young borrowers. While not all lenders are out to exploit borrowers, users must be careful when opting for such services.

(TransUnion)

14. The average payday loan default rate is about 6%, the same as the typical credit card default rate.

While many payday loan users cannot repay their loans on time, there are various means for lenders to recover the money. Despite roughly the same default rate as for credit cards, payday loans statistics show an APR of 400% or higher, while credit card interests rarely go over 30%. The argument that the high risk of US payday loans justifies the exorbitant interest sounds hollow on deeper scrutiny.

(Center for Responsible Lending)

15. 75% of Americans favor greater regulation of payday loans.

The various US payday loans reforms proposed or implemented by the CFPB are widely supported by the American population. About eight out of 10 people, for instance, favor requirements that payments take up only a small amount of each paycheck and that borrowers get more time to repay the loans. 

(Pew Charitable Trusts)

Frequently Asked Questions

How big is the payday loan industry?

Based on different payday lending industry statistics, the annual income of the industry from interest and fees is about $6 billion. This is earned on loans worth nearly $35 billion.

How do payday loans make money?

Payday lenders make money from charging high interest on short-term loans and fees from the borrowing process. The payday loan industry makes much of its money—more than 90% in some cases—by renewing loans to defaulters.

Are payday loans regulated?

Payday loans in the United States, like other forms of lending, are governed by laws like the Consumer Credit Protection Act (1968), the Truth in Lending Act (1968), the Equal Credit Opportunity Act (1974), the Fair Debt Collection Practices Act (1977), and the Electronic Fund Transfer Act (1978).

What states do not allow payday loans?

Payday loan facts show that the following thirteen states do not allow payday loans in any form: Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Vermont, and West Virginia. Payday loans are also prohibited in the District of Columbia.

What is the maximum payday loan amount?

One-time payday loan amounts usually do not exceed $1,000, according to payday lending data.

What is the average interest rate on a payday loan?

The average annual percentage rate of interest on payday loans is close to 400%.

What is the cap on payday loans interest and fees?

While several states have caps on payday loans interest and fees, the amounts vary across different jurisdictions. Some states like Idaho, South Dakota, Texas, and Wisconsin have no caps on payday loan interest rates or fees at the time of writing.

Who uses payday loans?

Statistics about payday loans show that given the high-interest rate on such loans, users of this type of cash advances are often people in desperate situations with few options for short-term funds at lower interest.

What percentage of Americans use payday loan companies?

According to a study by Pew Charitable Trusts, approximately 4% of Americans use payday loans annually.

Do payday loans check your credit?

No, most payday lenders do not check your credit before lending. This is one of the reasons why such loans are high-risk and, therefore, costly.

Do payday loans hurt your credit?

Payday loans in the US generally don’t show up on your credit report and, thus, don’t hurt or improve your credit. However, after multiple delays or defaults, if your debt is placed in the hands of a collection agency, payday loan statistics show that it can result in a dip in your credit score.

What percentage of borrowers cannot repay payday loans?

According to different studies, only between 14% and 20% of payday loan users are able to repay their loans on time.

What happens if you can’t pay payday loans?

If you can’t pay back your payday loan, one or more of the following can happen:

  • You may be charged additional fees;
  • Once the payday lender has failed to collect the payment from you, they will use a third-party debt collection agency. Such agencies use more aggressive tactics to get you to pay. Payday loan statistics show that lenders typically approach collection agencies after trying for 60 days;
  • Your debt being placed in the hands of a collection agency could lower your credit score;
  • The debt collection agency or the lender may sue you for owed payments. This could lead to liens against your property or wage garnishment;
  • Because of a lowered credit score or mention of your default on your credit report, you could also have difficulty in securing financing in the future.

How long does an unpaid payday loan stay on your record?

An unpaid payday loan can stay on your credit report for up to seven years.

Is defaulting on a payday loan a felony?

No, defaulting on a payday loan in the US is not a felony, meaning that you cannot be arrested for it. Despite this, payday lending statistics show that many collection agencies threaten borrowers with arrests, which is illegal.

Can payday loans take you to court?

Yes, defaulting on a payday loan may not be a criminal offense, but you can be taken to a civil court for it.

How many payday loans can you have out at once?

Having more than one payday loan at the same time is technically possible. However, under the new CFPB rules, the vetting process is stricter. This means that even with small (under $500) loans, you have to pay at least one-third of an existing loan to get another. Payday lending data further shows that you are also likely to be asked to prove your ability to repay all your loans before you are extended more money.

Can you get 2 payday loans from different places?

Similar rules apply to borrowing from two or more different payday lenders. While it is technically possible, since lenders can check your bank statements for any outstanding loans, you are likely to get a second loan only if you can prove your ability to repay the first one.

What percentage of payday loans are repeaters?

According to recent payday loans statistics, just under 80% of payday loans stateside are taken out within two weeks of paying off a previous loan. This means that nearly four in five payday loan users end up borrowing again.

Summary

While not all payday lenders are out to exploit you, the industry has some unique characteristics which lead to a higher risk for borrowers. This means it’s all the more important to only turn to reputable US payday loan providers if you’re in need of urgent short-term cash. In any case, we hope that these payday loan statistics will ensure greater caution on your part when you approach a lender the next time around.

References:CFPB, CFPB, Pew Charitable Trusts, Pew Charitable Trusts, Pew Charitable Trusts, Center for Responsible Lending, Pew Charitable Trusts, Pew Charitable Trusts, Pew Charitable Trusts, Pew Charitable Trusts, Federal Reserve Bank of St. Louis, Center for American Progress, TransUnion, Center for Responsible Lending, Pew Charitable Trusts.

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