Payday Loans Not Just For Low Income Earners

July 21, 2012 by

Payday loans are often looked down upon and more often associated to be for those with lower incomes or for those struggling to find money at the end of the month. This is the society’s assumption, however, that couldn’t be further from the truth! Payday loans are being used increasingly by high income earners for their situation, money for an emergency or a special occasion.

According to a report conducted by Pew Charitable Trusts, nearly 6% of adults in United States have used some form of a payday loan within the last five year. (Source: NY Times)

The percentage works out to nearly 21 million American citizens using payday loans or equivalent to roughly 60% of the whole Canadian population. Most of the payday loans are used to cover everyday expenses, not emergencies.

The interesting statistic that stands out is that one out of every fourteen payday loan applicants are professionals in well-paid jobs such as doctors, lawyers and accountants, a study that was conducted has shown. (Source: The Sun)

Even though payday borrowing is mostly concentrated among younger, lower-to-moderate income individuals, people with different ages, high-to-lower incomes use payday loans. Among the borrowers most likely to use them are those who are renters, rather than homeowners; those earning less than $40,000 annually; or those who are separated or divorced. Furthermore, nearly half of the people utilizing the services of payday loans are white collar workers, in management, sales and marketing positions amongst others. Therefore we can conclude that race, age, career orientation or income don’t necessarily indicate that payday loans are mostly used by low income earners.

Majority of the loans taken through payday loan lenders are secured by a postdated check, or an electronic debit authorization. Three-fourths of payday borrowers use storefront lenders, and about a quarter take out payday loans online.

In recent years (mostly post 2008 recession), payday lending has exploded across America and Canada as banks further tighten their belts, and credit seekers are looking for alternative ways to borrow money. Collectively, payday loan borrowers spend about $7.4 billion annually at storefronts, online, and at some banks that are becoming part of the payday lending game.
Payday loans are marketed to help meet unexpected expenses, like a car repair or a medical emergency. But most borrowers use the loans to cover ordinary living expenses, and remain indebted for an average of five months per year. Most first time payday borrowing users took out a payday loans to cover a recurring cost, like utilities, credit card bills, rent or food.
If we look at some of the stats above, we can conclude that regardless of income, people can get caught out and be short on cash at times, not just those out of work, but many types of people, including the successful white collar workers.
We shouldn’t judge payday loan users, at least they’re taking the higher route of seeking help to their financial problem through a loan vs. asking a family or friend for a loan. Payday lending is on a serious rise, and it should be looked at closer whether a two-week product with an A.P.R. typically around 400 percent is a viable solution for people dealing with a chronic cash shortage. Some people just can’t manage their money if the world depended on them, but the bigger concern is whether our society is getting more expensive while the wages are no matching the growing expenses in life.
Have you ever used a payday loan? Why?
Would you lend money to a close family or friend in need or let them use a payday loan?
Thanks for stopping by!
Eddie
Filed Under: Credit, Random

Comments

  1. Modest Money says:
    July 21, 2012 at 4:26 PM

    I always wonder just who uses payday loans when I drive by one of the main companies offering that service. It is easy to assume it is just low income earners, but other people do run into financial troubles too. Most well off people just have someone else they could turn to in that situation. I would be willing to lend money to a family member, but I can’t think of anyone in my family that I wouldn’t trust to pay it back promptly. I’ve never used a payday loan myself and I wouldn’t want my family member to resort to it either.
    Modest Money recently posted..The Carnival of Financial Camaraderie #42My Profile

  2. Lucille says:
    July 22, 2012 at 9:45 AM

    Pay Day loans are just another psychological crutch for the weak minded. This is my simple philosophy: “if you can’t afford it, do without” . There is nothing that we need so desperately that we can’t wait for until payday. Because we’re used to a culture of instant gratification we can’t stand the pain of denial.
    I’ve denied myself lots of stuff and I have no regrets.

  3. cash payday loans says:
    December 3, 2012 at 5:29 AM

    Whenever applying for a payday loan, make sure that all the information you provide is accurate. Often times, things like your employment history, and residence can be verified. Make sure that all your information is correct. You can avoid getting declined for your payday loan, leaving you helpless.