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Overview: Who uses payday loans?

The global economy has become increasingly complex and volatile in recent decades. Inequality of income continues to increase. Meanwhile, companies are finding new ways to make money. Financial "products" abound, including those targeting people who can not obtain other types of credit.

This oversupply has helped boost the phenomenal growth of consumer loans in the short term over the last 20 years. Offered by companies rather than banks, payday loans are specifically offered to people who do not make ends meet.

Industry representatives say that pay-type services bring economic benefits to all types of borrowers and address an unmet need ignored by traditional lenders. No traditional credit checks and no collateral are required to obtain these single payment loans for relatively small amounts.

Critics argue that such companies are predatory, taking advantage of people nowhere to turn to financial solutions. And indeed, some authorities have adopted a regulation. An example is the United Kingdom. Rollovers (renewal of a single payment loan) have been limited and fees capped in the hope of making payday loans cheaper and safer. When expressed as an annual percentage, payday loan fees can represent interest from 300 to 1,000%.

Whatever point of view we stand for, the rapid growth of the payday industry undeniably demonstrates strong consumer demand.

A mystery profile

So who are the people who take these loans at high cost? The United States has seen a lot of research on the subject. Many investigations and interpretations have been done by industry, universities and non-profit organizations. However, identifying who are the payday borrowers is an ongoing case that has given rise to conflicting claims.

In addition, online loans are a rapidly growing component of the global small-scale credit industry. Other factors – such as the boom in the local housing market or the resource industry's accidents – are clouding efforts to establish a borrower profile.

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A recent large-scale analysis by the US non-profit MDRC has once again confirmed that internationally recognized studies are the only definite feature of a payday borrower. People who take short-term, high-cost loans have a steady income, but that income is not enough to make ends meet.

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<h2> Demographic Portrait </h2>
<p> Nevertheless, to begin to draw a general picture, we can turn to a source cited by various American reports. In analyzing data from a 2007 US triennial survey on consumer finance, researchers found that dependent household heads tended to: </p>
<li> To be under 45 years of age </li>
<li> Being a single woman (42%) or part of a couple (40%) </li>
<li> Have a high school diploma (39%) or college (27%) </li>
<p> Minority families were more likely to have borrowed from a payday lender than white families, just like military families. </p>
<h2> Average income but less wealth </h2>
<p> But the anatomy of a borrower obviously intersects with other variables that may or may not be a function of a particular set of demographics. These same US data can nevertheless illustrate the financial commonalities between people who turn to a lender. </p>
<p> Since payday loans require a stable income, the lowest income is not the most likely to get one. This US survey showed that the median income of payday borrowers was $ 30,892, while the non-payer salary using families was $ 48,397 </p>
<p> More contrast was found by looking at the accumulated wealth of people. The median net worth of payday borrowers was $ 0 compared to $ 80,510 for non-payers. Families who took out a payday loan had assets with a median value of $ 4,550. Households that did not use help desk services had 44 times higher median assets, or $ 201,000. </p>
<p> Similar problems arise in other countries. In Norway, where renting is widely regarded as a waste of money and where real estate prices have exploded, young people are desperate. Without savings, some take consumer loans (also high interest, but may be a bit longer term than the type of salary) to obtain mortgages from the bank. Such a decision could mean paying 13% instead of the 3% offered to a communal bank. </p>
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Debt smaller but steeper

By earning and owning less, and less likely to obtain standard forms of credit, the average borrower has a total indebtedness lower than one who does not use payday loans.

However, monthly payments of a payday borrower's debt are more likely to be high interest and to eat more of their income. A study sponsored by the US industry in 2007 acknowledged that nearly one-third of payday borrowers face monthly debt payments that take up 30% + of their income. Another 12.9% had to pay between 20% and 29% of the monthly household income.

Such debt service levels would likely prevent clients from obtaining additional credit from traditional lenders. This leaves nearly half of the payday lenders at risk of refinancing this debt and paying other fees. Even worse, they might need to turn to another / other payday lenders for additional payday loans.

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<h2> Credit troubled </h2>
<p> This spiral is the source of another characteristic shared among payday borrowers: they had past credit problems. Analysis of SCF data revealed that 33% of payday borrowers who had applied for a loan in the last five years had been rejected. This compares to 10% of claimants using non-paying loans. </p>
<p> Disturbingly, the credit-troubled trait begins to manifest itself more widely. </p>
<p> Data from the US payday loan industry show that payday loans have increased among those who previously had first-rate credit ratings. These were people who had high incomes and good credit behavior, but who were hard hit and found themselves without the financial resources to overcome them. Payday loans from this segment jumped more than 500% in just 18 months (from February 2010 to August 2011), according to the nonprofit MDRC. </p>
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State of mind

Finally, there is no doubt that various social and psychological factors influence a person's decision to take out a payday loan. However, the research only gives clues as to whether the live paycheck could cause or create accommodative or contributory mindsets.

For example, polls conducted for a 2010 article on a review of the law revealed that a US borrower has little confidence in his financial control. Only 27% of households surveyed consider themselves savers, compared to 48% of households that did not take out payday loans.

Conversely, the survey revealed that a payday borrower generally believes that he will repay the loans in a short period of time – despite many statistics to the contrary effect.

Moreover, this research revealed that most payday lenders are regular clients. Respondents reported finding help services more convenient, less intimidating and less embarrassing than getting a loan from another source.