Payday Lending in America: Who Borrows, Where They Borrow, and Why

Payday Lending in America Who Borrows, Where They Borrow, and Why Most borrowers use payday loans to cover ordinary living expenses, not unexpected emergencies. Payday lending restrictions are not leading to increased online borrowing. In states that restrict storefront payday lending, 95 of 100 would-be The first time people took out a payday loan, 69 percent used it to cover a recurring expense, such as utilities, credit card bills, rent or mortgage payments, or food. borrowers elect not to use payday loans at all-just five borrow online or elsewhere. REASON FOR FIRST LOAN regular expenses e.g. utilitles, car payment, recurring 53% 69% expenses credit card rent/ 95 10% mortgage food 5% unexpected emergency/ 16% expense something special 8% other 5% SOURCE: Pew Safe Small-Dollar - don't know 2% Loans Research Project, 2012. SOURCE: Pew Safe Small-Dollar Loans Research Project, 2012. If payday loan storefronts were unavailable, borrowers report having a variety of other options. Eighty-one percent of borrowers say they would cut back on expenses if faced with a cash shortfall and payday loans were unavailable. Many also would delay paying some bills, rely on friends and family, or sell personal possessions. Cut back on expenses 81% Borrowers are more Delay paying some bills 62 likely to choose options that do not Borrow from family/friends 57 Sell/pawn personal possessions 57 connect them to a formal institution. Get loan from bank/credit union 44 Use a credit card 37 SOURCE: Pew Safe Small-Dollar Loans Research Project, 2012. Borrow from employer 17 Notes: Data in first graph represent percentage of borrowers who reported the reason for using their first payday loan based on 451 interviews from December 2011 to March 2012. Survey participants were asked: "Thinking back now to (that FIRST/the) time you took out a (online payday loan/payday loan/auto title loan), which of the following best describes what specifically you needed the money for? 1) To pay rent or a mortgage; 2) To pay for food and groceries; 3) To pay a regular expense, such as utilities, car payment, credit card bill, or prescription drugs; 4) To pay an unexpected expense, such as a car repair or emergency medical expense; 5) To pay for something special, such as a vacation, entertainment, or gifts; 6) (Do not read) Other (specify)." The combined results for "Recurring Expenses" add to 69 rather than the expected 68 because of rounding decimals. Data in third graph represent percentage of borrowers who would use each of these strategies if payday loans were unavailable based on 451 interviews from December 2011 to March 2012. Survey participants were asked: "I'm going to read you several options. For each, tell me whether you would use this option if you were short on cash and short-term loans of any kind no longer existed. How about (method)? Would you use this option or not?" The "borrow from employer" item was only asked of employed respondents. The response options for these survey questions were randomized, so the order in which the respondent heard them varied to eliminate order bias. Sampling error for the full-length survey of storefront payday loan borrowers is +/- 4.6 percentage points. SOURCE: Pew Safe Small-Dollar The Pew Charitable Trusts The Pew Charitable Trusts, 2012 Infographic by Carla Uriona Loans Research Project, 2012.