During the past one year the payday loan industry has a boomed a lot, especially in those states which have legalized such loans. With this boom in the industry, there has been an increased interest around studying it as well. When talking about the lending industry in the United States there are some interesting facts which have emerged through the years, these facts also indicate the state of people who usually go for these loans. Let’s take a look at them.
THE AVERAGE NUMBER OF LOANS
How many times do you think an average American takes out a payday loan per year? You might think of it to be a couple of times per year, but the real number shows the problem with the whole concept in the first place.
The average borrower will try to borrow about 8 times per year, but why is this number so high? A study by the Pew Charitable Trust indicated the reason to be loan traps. Usually, payday loans have very high interest rates which makes it very difficult for people to pay the amount back. So, to pay the original amount back, borrowers end up taking out more loans.
For example, if you take a loan for an amount of $375, you will end up spending about $520 on interest.
HIGH INTEREST RATES
A lot of you might already know about the problem of high interest rates. But usually, these lenders will package the deal in such a way that they don’t sound like a lot if you don’t think about it. In reality, the average annual interest you will end up paying is about 400%.
This doesn’t mean that you always have to pay 4 times the borrowed amount, but here is another interesting fact, about 60% of borrowers will pay more in interests and fees then what they actually borrowed. That’s why these loans are also known as bad credit loans.
Don’t get me wrong, payday loans are not evil, but bad decisions by people land them in trouble. If you are careful about borrowing amounts and you pay them on time, then these loans can do wonders for your emergency financial needs. A lot of people end up borrowing a lot more than they need because of offers such as payday loans online no credit checks instant approval.
MUCH BETTER INTEREST RATES FOR MILITARY PERSONAL
There was a law passed way back in 2006 called the Military Lending Act which put a cap on the annual interest rates being offered to any military personnel. This was done due to the added stress which was being caused to families in the military because of high interest rates. Now any lender can only offer 36% annual interest rates on any kind of loans.
THE PERIOD FOR REPAYMENT
An average lender will give you about two weeks to repay your debt. But with the added interest rates, a lot of people are not able to do so. This forces them to borrow more money at a higher interest rate and before they know it turns into a trap.
MORE LENDERS THAN MCDONALDS
You can see a McDonalds in almost every part of the country, there are almost 15,000 of them just in the United States. How many payday lenders do you think there are? Remember the fact that only 32 states have allowed payday loans while McDonalds is in every state. There are more than 20,000 payday lenders in these states alone.
Because of potential for higher returns a lot of people consider payday lending as a viable income source.
ONLINE PAYDAY LOANS
Most of the lenders used to operate through physical stored as early as a few years ago, but the whole market was forced to move online especially during the pandemic. The overall demand for payday loans increased by about 20% last year and as physical stored were closed, lenders moved online to fill in the demand. Bad credit loans was one of the most searched terms last year as people’s savings dwindled and new medical costs came up everyday.