Posted by Angie Robson on August 4, 2020
According to federal reserve statistics about payday loan borrowers, at least 12 million Americans utilize payday loan services each year, with the number estimated to be on an upward trajectory regarding economic stability. About 50 percent of the total borrowers don’t understand the complexity behind annualized percentage rate calculations, which makes them prone to high-interest rates. However, expert payday loans continue to increase in demand with South Dakota, Louisiana, New Mexico, Alabama, Kentucky, Utah, and Mississippi being the leading states with high numbers of payday loan lenders.
What is a payday loan?
Payday loans are quick unsecured loans offered as salary advance to the borrowers, without scrutiny on factors such as collateral and bad credit score. According to the federal reserve, 13 percent of the total American population consists of poor individuals with years of bad credit, which diminishes their chances of acquiring conventional loans. The population turns to payday loan as a funding alternative to get financial support. This makes them prone to the financial exploitation of short pay duration and high-interest rates.
Reasons for a payday loan
Most individuals rely on monthly salary to cater to their needs. Most borrowers use payday loan to cater for recurring expenses and emergencies. Less than one percent of borrowers use payday loan to pay for long term investments. About 26 percent of the American population is “unbanked”, and the only way they can access funds is via payday loan institutions. Most individuals refer to the conventional mode of banking as slow and tiresome and divert to payday loan institutions, which are convenient and can easily be done online.
Most Americans earn an average income of about $30,000-$40,000, and about 60 percent of these Americans find it challenging to meet their monthly expenses. While it’s possible to get salary advance from banks, the process is tedious and lengthy, which makes them utilize payday loan institutions.
Payday loan popularity index
The payday loan industry is expanding by the day, with about 2.6 million households utilizing these services at least once per year in the United States. At least one person in a group of 50 Americans utilizes payday loan products each year. This depicts the popularity index of payday loans to Americans. The numbers are expected to rise from the economic turbulence being experienced, with most Americans receiving a cut in their salary.
Is payday loan legal?
About 27 states in the United States have legalized payday loan with every state having a price regulation policy on the products to cap the interest rates. Lenders, however, find loopholes to exploit borrowers but risk being banned. Some institutions have come forward to educate the public about these loans to curb the predatory lending that has been experienced in the previous years. However, the final decision to utilize payday services lies with the individual borrower. There are other institutions assisting potential lenders in getting government short-term financial services, although it has stricter qualifying factors compared to payday loan.