A look at the telling statistics of payday loans

Each year, approximately 12 million Americans take out payday loans. What they need the money for might not be what you’d expect.

You’ve probably seen a payday loan storefront or online ad for quick cash loans at some point in your life. Whether you’ve ever considered taking out a payday loan or not, you may be familiar with the concept of short term lending. These loans are typically used by people with lower incomes and are usually marketed by lenders as a remedy for unexpected financial emergencies.

What you may not know is that most people who use payday loans end up taking out more than one over the course of the year — and what they need the money for might not be what you’d expect. Read further to see the telling statistics of payday loans told through five charts and diagrams (information from The Pew Charitable Trusts).

What exactly are payday loans?

A payday loan is an alternative form of credit that can be accessed quickly and taken out by those with bad credit or on lower incomes. Because they can be accessed by those in need of urgent funds, or by those who wouldn’t be eligible for traditional loans, payday loans typically have a higher annual percentage rate (APR) than you’ll find for other personal loans or credit cards.

Payday loans are a form of short term lending. These small dollar, high cost loans are usually between $50 to $1,000. Here’s a diagram that quickly illustrates the different types of personal loans:

Personal Loan Types diagram

Who uses payday loans?

Approximately 12 million Americans use payday loans each year. View the diagram below to see payday loan usage by demographics.

Demographic factorHighest payday loan usageDescription
Age25-49People ages 25 to 49 are more likely to use payday loans compared to other age groups. Senior citizens ages 70 and older are least likely to use payday loans.
EducationNo four-year college degreeThose who haven’t completed a four-year college education are more likely to take out payday loans. Beyond that, there isn’t much difference based on level of education.
RaceAfrican AmericanAfrican Americans are twice as likely to take out a payday loan than people of other races/ethnicities
Income$15,000 – $25,000Those with household incomes less than $40,000/year are almost three times more likely to take out a payday loan than those with higher incomes. People in households making between $15,000 and $25,000/year are the most likely to take out a payday loan.
Real EstateRenterRenters are more than twice more likely to use payday loans than homeowners.
WorkplaceDisabledThose who are disabled or unemployed are more likely to use payday loans than those who are employed.
Familial statusParentParents are more likely to use payday loans than those without children.
Marital statusSeparated or divorcedThose who are separated or divorced are twice as likely to use payday loans than people of any other marital status.

What expenses do people take out payday loans for?

Surprisingly, the vast majority (69%) of people who take out payday loans use the money to cover recurring expenses such as credit card bills, rent and food. This demonstrates that most people who take out payday loans have an ongoing shortage of cash and a constant need for more income.

Although many payday loan lenders market their loans as a quick fix for unexpected emergencies, only 16% of payday loan borrowers use the money for that purpose.

Expense typePercentage of borrowers
Reoccurring expenses69%
Unexpected emergencies16%
Something special8%

Where do people go to get payday loans?

The majority (73%) of payday loan borrowers visit a storefront to get payday loans. Those in southern states are more likely to take out payday loans than those in other geographic areas within the US. People residing in the northeast are least likely to take out payday loans. Drilling down to cities, those living in urban cities are most likely to take out payday loans.

Payday loan regulations by state

What are some alternatives to payday loans?

When experiencing a financial hardship, it may seem difficult to see other options that are available to help get out of the situation. Here are some payday loan alternatives, including other ways to borrow and ideas besides borrowing:

Other ways to borrow

Loan typeBenefit
Personal loanPersonal loans tend to come with lower APRs than payday loans. These loans can be obtained from online lenders, banks or credit unions.
Credit card cash advanceA credit card cash advance allows cardholders to withdraw cash based on their credit limit for a fee.
Ask friends/family for helpA loved one may be able to provide a loan at no interest to help with a financial hardship.

Ideas besides borrowing

MethodBenefit
Cut back on expensesIf it’s possible to delay some purchases or spend less on certain items, this could prevent the need to take out a payday loan.
Find a side gigThere are plenty of options for making extra money, including taking online surveys and driving for Uber.
Sell possessionsSelling unwanted items like clothing or furniture not only provides more income but also reduces clutter.

Bottom line: Payday loans are high-cost financial products in a murky market, but you can avoid a debt spiral if you’re informed

Given the common perception of payday loans as a quick fix for unexpected emergencies, it’s surprising that most borrowers take out payday loans to cover recurring expenses. The high APRs and fees for these small dollar loans make them a costly financial product, especially if used multiple times in a year. However, a payday loan doesn’t have to result in a cycle of borrowing or a debt spiral. Consider the alternatives and compare your short term loan options to make sure you’re making a good decision.

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