SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
More People Turning to Risky, High Cost 'Payday Loans' to Meet Basic Needs
Jul 19, 2012
As economic strain continues to plague the US, more people are turning to risky high cost 'payday loans' to pay for basic necessities such as food and rent, according to a recent study by Pew Center on the State.
Payday loans are short term high interest loans sold to consumers who may not typically qualify for lower interest long term loans from banks. The loans are advertised to cover unexpected costs such as a car repair to bide time until the following payday, hence the name.
However, according to the PEW study, now 7 in 10 people who use these high-fee loans are now using them more frequently and for everyday expenses, sinking further in debt just to meet day to day needs. Borrowers are usually low income individuals who are struggling to make ends meet from paycheck to paycheck.
The Pew report shows that now the average borrower may take out eight loans a year of up to $375 each and spend $520 in interest. The loans typically hold and APR of up to 400 percent.
"It's not because of some unusual need that people are turning to payday loans. It's because of some regular need," said Nick Bourke of PEW. "People are paying a lot more in payday loan costs and fees than they anticipate going in," Bourke said.
Each year, 12 million borrowers spend approximately $7.4 billion on payday loans.
"The payday loan industry is selling a product that few people use as designed and that imposes debt that is consistently more costly and longer lasting than advertised," the report concludes. "This circumstance is especially troubling because the conventional payday loan business model fundamentally relies on repeat usage--often, renewals by borrowers who are unable to repay the full loan amount upon their next payday--for its profitability."
"These findings raise serious concerns about payday lending, including whether a two-week product with an APR typically around 400 percent is a viable solution for people dealing with a chronic cash shortage."
An Urgent Message From Our Co-Founder
Dear Common Dreams reader, It’s been nearly 30 years since I co-founded Common Dreams with my late wife, Lina Newhouser. We had the radical notion that journalism should serve the public good, not corporate profits. It was clear to us from the outset what it would take to build such a project. No paid advertisements. No corporate sponsors. No millionaire publisher telling us what to think or do. Many people said we wouldn't last a year, but we proved those doubters wrong. Together with a tremendous team of journalists and dedicated staff, we built an independent media outlet free from the constraints of profits and corporate control. Our mission has always been simple: To inform. To inspire. To ignite change for the common good. Building Common Dreams was not easy. Our survival was never guaranteed. When you take on the most powerful forces—Wall Street greed, fossil fuel industry destruction, Big Tech lobbyists, and uber-rich oligarchs who have spent billions upon billions rigging the economy and democracy in their favor—the only bulwark you have is supporters who believe in your work. But here’s the urgent message from me today. It's never been this bad out there. And it's never been this hard to keep us going. At the very moment Common Dreams is most needed, the threats we face are intensifying. We need your support now more than ever. We don't accept corporate advertising and never will. We don't have a paywall because we don't think people should be blocked from critical news based on their ability to pay. Everything we do is funded by the donations of readers like you. When everyone does the little they can afford, we are strong. But if that support retreats or dries up, so do we. Will you donate now to make sure Common Dreams not only survives but thrives? —Craig Brown, Co-founder |
Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.
As economic strain continues to plague the US, more people are turning to risky high cost 'payday loans' to pay for basic necessities such as food and rent, according to a recent study by Pew Center on the State.
Payday loans are short term high interest loans sold to consumers who may not typically qualify for lower interest long term loans from banks. The loans are advertised to cover unexpected costs such as a car repair to bide time until the following payday, hence the name.
However, according to the PEW study, now 7 in 10 people who use these high-fee loans are now using them more frequently and for everyday expenses, sinking further in debt just to meet day to day needs. Borrowers are usually low income individuals who are struggling to make ends meet from paycheck to paycheck.
The Pew report shows that now the average borrower may take out eight loans a year of up to $375 each and spend $520 in interest. The loans typically hold and APR of up to 400 percent.
"It's not because of some unusual need that people are turning to payday loans. It's because of some regular need," said Nick Bourke of PEW. "People are paying a lot more in payday loan costs and fees than they anticipate going in," Bourke said.
Each year, 12 million borrowers spend approximately $7.4 billion on payday loans.
"The payday loan industry is selling a product that few people use as designed and that imposes debt that is consistently more costly and longer lasting than advertised," the report concludes. "This circumstance is especially troubling because the conventional payday loan business model fundamentally relies on repeat usage--often, renewals by borrowers who are unable to repay the full loan amount upon their next payday--for its profitability."
"These findings raise serious concerns about payday lending, including whether a two-week product with an APR typically around 400 percent is a viable solution for people dealing with a chronic cash shortage."
As economic strain continues to plague the US, more people are turning to risky high cost 'payday loans' to pay for basic necessities such as food and rent, according to a recent study by Pew Center on the State.
Payday loans are short term high interest loans sold to consumers who may not typically qualify for lower interest long term loans from banks. The loans are advertised to cover unexpected costs such as a car repair to bide time until the following payday, hence the name.
However, according to the PEW study, now 7 in 10 people who use these high-fee loans are now using them more frequently and for everyday expenses, sinking further in debt just to meet day to day needs. Borrowers are usually low income individuals who are struggling to make ends meet from paycheck to paycheck.
The Pew report shows that now the average borrower may take out eight loans a year of up to $375 each and spend $520 in interest. The loans typically hold and APR of up to 400 percent.
"It's not because of some unusual need that people are turning to payday loans. It's because of some regular need," said Nick Bourke of PEW. "People are paying a lot more in payday loan costs and fees than they anticipate going in," Bourke said.
Each year, 12 million borrowers spend approximately $7.4 billion on payday loans.
"The payday loan industry is selling a product that few people use as designed and that imposes debt that is consistently more costly and longer lasting than advertised," the report concludes. "This circumstance is especially troubling because the conventional payday loan business model fundamentally relies on repeat usage--often, renewals by borrowers who are unable to repay the full loan amount upon their next payday--for its profitability."
"These findings raise serious concerns about payday lending, including whether a two-week product with an APR typically around 400 percent is a viable solution for people dealing with a chronic cash shortage."
We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.
To inform. To inspire. To ignite change for the common good.
News & Opinion
Trending
Common Dreams, Inc. Founded 1997. Registered 501(c3) Non-Profit
Privacy Policy