Payday loans have played a volatile and uncertain role during the current American recession. Many Americans have relied on payday loans as a quick fix for a one-time tight spot. But a new study on the States by Pew Charitable Trusts’ project, the Safe Small-Dollar Loans Research Project, shows that more and more people who take out payday loans are doing so with more frequency and consistency.
This report shows that seven of the 10 people who are taking out and relying on these payday loans, which often come with a steep interest rate, use them to pay for everyday items, such as food, rent and gas. That’s a staggeringly high percentage of current short-term borrowers.
As Nick Bourke told NBC Economy Watch, “It’s not because of some unusual need that people are turning to payday loans. It’s because of some regular need.”
There were a few common factors that united the 5.5 percent of adult Americans who have taken out a payday loan in the last five years. Many of these adults were parents who had an average income that was below $50,000. Many of the people that took out loans were also more commonly separated or divorced, which often meant they had more financial responsibilities for children and no joint incomes to help make payments on time and with greater ease.
Payday loan companies stand beside their product, pointing out that the terms are often clear to the customer and that the American people need a financial option in these economic times. The loans come at a steep price, often costing $15 for every $100 taken out. Most of the loans taken out are between $100 and $500, according to the Pew study. Experts advise that people who take out these loans should educate themselves on the details of the deal they agree to. Fine print can often land people in trouble, or unable to pay.
The United States is not the only country to see an increase in payday loan activity. The United Kingdom has also seen a regularly growing number of quick loans taken out every year. Between 2006 and 2010, payday loans quadrupled in the U.K. Many analysts cite the unstable job market as a major factor for the increase in short-term loans in both the United States and the United Kingdom.
Although these costly loans are a last resort, the growing numbers of people who rely on this form of credit for daily needs are hitting record highs. Debt in the United States remains a general concern for the standard American and this past spring, Congress wanted to double the interest on federal student loans, which would make it much harder for students to pay off their debts after graduation.
Photo Credit: Vinceesq
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