According to loan companies, payday loans are supposed to be emergency loans available for a few weeks at a time, used for unforeseen expenses. Some of the expenses for which payday lenders recommend their products be used include:
- Unexpected medical bills
- Educational expenses
- Emergency break-down costs for a vehicle used to commute to work
- Repairing an air conditioning unit in the summer or a heating system in the winter
- Replacing a broken down household appliance
However, a recent study by the Pew Charitable Trusts illustrates that payday loans are being used for every day, standard expenses much more often than these one-off emergency expenses.
Payday loans are increasingly utilized for basic expenses
As Americans see their wage packets shrink but their expenses increase in cost, there is an undeniable shortfall within many households’ incomes and expenditures. Although payday loans are often portrayed as being a short-term solution for once-in-a-while spending needs, for example to cover the cost of a hospital stay, a secondhand car or a vital piece of home maintenance, the truth is that these loans are being used for much more mundane reasons.
According to the Pew study, two-thirds of survey respondents from across all demographics reported using payday loans for their ongoing living expenses. They are used often- the average borrower takes payday loans out for 5 out of 12 months of the year, representing payday loan usage for almost half of any annual period. Furthermore, in any given month, payday loans are used on average for 18 days by the average borrower. This represents frequent usage clearly above and beyond that of emergencies only.
The first time they took a payday loan, it was used for:
- Electricity and other household utilities
- Credit card bills
- Mortgage costs
- Groceries and food
- Gas money and transportation costs
How much of payday loan usage is for emergencies?
Only 16% of payday loan usage is put towards emergency, unforeseen expenses such as sudden medical or veterinary bills, repairing a leaky roof, or paying for some other circumstantial expense.
What does this tell us?
These figures shows us that payday loans are bridging a major economic gap within the incomes of many working Americans, for whom their paychecks do not provide adequate funds to cover even the most basic of expenses. This suggests that the use of payday loans as a means of making the month will only increase as the cost of living becomes higher. Theoretically, state laws on loan terms notwithstanding, consumers could find themselves using payday loans for more months than they do not use payday loans, making it all the more vital for repayments to be prompt and full in order to clear short term debt as quickly as possible.
What can consumers do to get out of using payday loans too often?
Reliance on payday loans as an additional source of income is not recommended. In order to minimize the need to apply for repeated loans, consumers should try to consider:
- Reducing monthly outgoings by trimming off unnecessary expenses such as premium cable and sports packages
- Commuting to work on mass transit instead of driving
- Packing lunch for work instead of buying from restaurants each day.
- Shopping at lower-cost grocery stores.
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