Most Popular Reasons for Payday Loans 2022 (Statistics)

Written by John Brown

Payday loans are one of the most common types of borrowing in the US. Statistics show that about 6% of the US-Americans have taken out at least one payday loan in the last five years, and twelve million citizens resort to payday loans annually. 

Although payday loans are positioned primarily as the most convenient way to cover emergency expenses, actually, this is not the sole or even primary reason for using them. And if you’re also thinking about getting a payday loan, it would be helpful to learn more about this borrowing option, how it works and why people choose it.

Payday Loan Essentials

A payday loan, also called a cash advance, is a type of unsecured loan based on a borrower’s income and credit score and not on the value of a particular asset pledged as collateral.

Compared to other unsecured loans, a payday loan provides the fastest access to money, which attracts many potential borrowers. Yet, along with that, a payday loan has the shortest repayment terms, usually from two weeks to one month, as it’s supposed to be repaid from the borrower’s nearest paycheck or other regular income received.

With a payday loan, you can typically receive from $100 to $1,000 directly into your bank account, sometimes on the same day you apply for the loan.

Besides, payday loans are well-known for being easy to get, especially if addressing online direct lenders. They tend not to have stringent loan eligibility criteria, so even bad-credit borrowers or those without credit history have a chance to obtain the necessary funds. 

To sum it all up, payday loans combine the following pros and cons:

Borrowers’ Decisions Statistics

Demographic Trends

Specific demographic patterns exist in taking out payday loans. Statistics say that more often, payday loans are used by people in their 20s, which can be explained by the fact that they are just starting to build credit. Low-to-moderate-income borrowers aged 30 to 34 are in second place.

Besides, younger people tend to opt for online lenders rather than storefronts. Although online lending is generally used by only 16% of all borrowers (73% use only traditional lenders, 4% use both methods, and 7% use any alternative services), younger borrowers prevail among them. And interestingly, those who most often choose online loans are people with a college degree and incomes above $50,000.

As for marital status, most payday loan borrowers are divorced or separated people (especially single parents), and as for home status, those who rent houses are above 50% more likely to resort to payday loans than those who own their own homes.

And finally, these demographic trends, in a sense, correlate with the most common reasons for taking out payday loans.

Top Payday Loan Purposes in the US

Although financial advisors do not recommend using costly payday loans for daily expenses, as they are designed for emergencies, the real-life situation is quite different from this concept.

According to the latest data, about 70% of borrowers use payday loans for recurring expenses since their income is insufficient to provide a comfortable life. And only about 30% of borrowers resort to payday loans in case of emergency or some special occasion.

Of the first group of borrowers:

• 53% have taken payday loans for regular expenses, including utilities, medicines, or credit card bills;
• 10% — to make rent or mortgage payments;
• 5% — to buy food.

Of the second group of borrowers:

• 16% have taken payday loans to pay for unexpected expenses, like urgent car or home repairs, emergency medical bills, pet emergencies, etc.
• 8% — to pay for travel expenses, vacations, gifts, or celebrations
• 5% — for any other unspecified reasons.

Making the Most of Payday Loans

As we can see, payday loans are often used at odds with the original purpose. As a result, this experience of some borrowers contributes to negative perceptions of payday loans as a whole. Financial advisors and lending industry representatives insist that payday loans are not meant for long-term use. Thus, to reap the benefits of payday loans without the risks associated with high interest rates and potential debt traps, you need to remember a few essential things:

• Do not consider a payday loan as a long-term solution. Instead, take it out if you need to cover small one-time expenses. 
• Approach the choice of a lender very responsibly. Payday loans may create fertile ground for predatory lending, so you should know the payday lending laws of your state and check whether the lender is licensed to do business in a particular state. Also, you can use online services like GetCash.com, which are designed to connect borrowers with vetted lenders who match their needs and circumstances.
• Always read the loan terms carefully, and do not agree to the terms that are unclear to you. According to the Truth in Lending Act, all lenders must provide potential borrowers with detailed information about interest rates, fees, penalties, etc., and ensure the borrower can make an informed decision.
• Accept the loan only after making sure you can repay the loan on the due date. Always look at the total amount, considering the interest and all the applied fees.
• If you feel that you cannot repay the loan on time for some reason, please do not hesitate to contact your lender before you miss the payment. The lender may help you find a solution available in your particular circumstances.