Many consumer advocates decry the very existence of payday loans, asserting high interest rates among other things make them terrible. However, the product appears to be needed, as most payday loan use is for household expenses.
According to NBC News, a Pew Center on the States study has just been released concerning payday loan demographics and payday loan use, finding that most people who borrow payday loans do so to help with every day expenses.
Household expenses were cited as the reason for borrowing for 70 percent of respondents who had borrowed payday loans, as people needed help keeping up with various bills. The average borrower, according to the Huffington Post, is between 25 to 49 years of age, with white females making up the bulk of borrowers by number. However, according to NBC News, a larger percentage of African Americans borrow payday loans.
Parents are more likely to borrow payday loans and singles and divorced people borrow payday loans more often than married people. The typical borrower hasn’t attained a Bachelor’s Degree and earns less than $40,000 per year. People earning $15,000 to $25,000 per year are the most common borrowers.
More than $500 per year in fees
Roughly 12 million people borrowed a payday loan in 2010 and in the past five years, roughly 5.5 percent of the population has borrowed one.
The average payday loan, according to CNN, is for $375, with an average fee of $15 per $100 loaned. Most loans, according to NBC News, are between $100 and $500. Expressed in annualized percentage rate interest, it’s 391 percent, though the average loan has a term of two weeks. In simple interest, its 15 percent. The typical borrower takes out 8 per year and pays $520 in fees.
However, up to 7 of those 8 loans are in what are called “rollovers,” in which the borrower renews the loan, often to pay the previous one. Borrowers are usually in debt for five months while rolling over the loans. All told, the typical payday loan borrower will pay $895 in total.
Storefront more common than online
The typical payday loan is borrowed from a “storefront” payday loan lender, meaning some sort of physical location such as a payday loan store or a bank. Storefront lenders often charge less than online payday loan lenders, as the average loan of $375 carries fees of $55 from storefront lenders, compared to $95 for online lenders. Only about one-quarter of respondents borrowed payday loans from online lenders.