An average of 12 million Americans use payday loans every year, spending roughly $9 billion per year on payday loan fees alone. Although payday loans are designed for short-term use to cover emergency payments, there are a range of purposes that consumers in the US use payday loans for.
In past times, payday loans could only be applied for and acquired in payday loan stores, no matter whether you were looking for payday loans in Texas or a payday loan in Ohio. However, in recent years, there has been an increase in the number of online providers and loan brokers that allow you to get a loan online and borrow money online.
What Are USA Payday Loans?
Payday loans in the USA are a form of unsecured loan designed to help those that need, borrow a relatively small amount of money over a short period of time with higher than normal interest rates.
They are designed to cover emergency expenses, debts and payments that may arise from paycheck to paycheck.
The idea is that the borrower can gain quick access to funds which they will then pay back upon receipt of their salary on their next payday. These loans are favored by those who are looking for quick funds and who may not qualify for other means of funding such as loans or credit cards.
Payday loans are not legalized in all US states with these types of loans still illegal in New York and other states. However, in the majority of US states, including the likes of Nevada and Florida, payday loans are legalized and can be provided by authorized lenders in those states.
There are over 23,000 payday lenders across the United States and the industry is projected to reach $48.68 billion by 2030, according to Allied Market Research.
What Do People Use Payday Loans For in the USA?
Payday loans are designed for short-term emergency payments, which will usually include things like emergency repairs and unexpectedly high credit card bills.
However, when looking at consumer data, it is clear that these loans are not always used as they were intended.
Research from the Pew Charitable Trusts shows that only 16% of payday loans customers are using payday loans for an unexpected expense. 69% of payday loans customers, on the other hand, used it to cover a recurring payment such as a credit card bill, paying rent or mortgage payments or utilities. Although it is possible to use payday loans for recurring and repeat payments like credit cards and mortgage payments, it is always recommended not to do so, as it can lead borrowers into a spiral of debt.
What Are The Top 10 Uses For Payday Loans in the USA?
Although there are some loans which have specific intentions behind them, such as car repair loans and even loans of specific amounts, like $600 loans or a $1000 loan, there are in practice, no limitations, once accepted what a borrower can use the money for.
1. Borrowing Money With Bad Credit
Payday loans are a common solution to borrow money online for bad credit borrowers. They are thought to be one of the easiest loans to be approved for; both online and offline and borrowers do not need to adhere to strict lending criteria or thorough credit checks as they would with other forms of credit or loans.
For example, banks will only provide loans to borrowers with a good credit history. Not only that, sometimes taking out a payday loan form a reputable lender to cover debts could be a good option.
2. Getting a Payday Loan For Debt Consolidation
Many payday borrowers are attempting to pay off existing debts: this could be a credit card bill, another loan or even money that they owe to an individual. Using a payday loan to pay off outstanding debt could be useful if you are trying to reduce debt.
However, you need to consider whether you will actually save money by getting a payday loan online; for example, if the payday loan has higher interest rates than the loan which the borrower is trying to repay, it may not make sense.
3. Trying To Cover Up Debt Problems With a Loan
Some turn to payday loans if they are afraid to admit to friends or family that they are in need of financial support. If you are having serious financial trouble, it can be daunting to tell your loved ones and more awkward still to ask them if you could borrow money.
As a result, many would rather seek out a payday loan so that they can keep their personal relationships out of the equation and avoid embarrassment.
4. Borrowing Money Online For Mortgage Payments
If you miss multiple mortgage repayments, the mortgage provider could take action against you and you could potentially lose your home.
Therefore, if borrowers find themselves falling behind on mortgage repayments or unable to pay, they might look to payday loans in order to cover their expenses and avoid eviction or repossession, even if just in the short term.
5. Payday Loans During The Holiday Season
Holiday season can be expensive, whether it is Christmas presents, taking a trip or redecorating the house. It is a time when personal expenditure is at an all-time-high but income remains the same. As a result, many look to payday loans to fund their seasonal spending.
Christmas is a very busy time for the payday loans sector as people look to cover their additional short-term expenses. However, this is only a good idea if the borrower can afford to repay the loan, plus additional interest.
6. Payday Loans for Medical Bills
The United States has some of the highest costs of healthcare in the world. In 2020 alone, healthcare spending in the US was $4.1 trillion; an average of $12,500 per person. In fact, hospital bills were cited as one of the biggest contributors to bankruptcy.
It is not just hospital bills that add up: everything from doctor visits to diagnostic tests to dental care to trips to the ER rack up a bill of their own.
Subsequently, it is easy to see why borrowers may turn to payday loans to help them cover their medical costs. Among Americans who have medical bills in collection, 17% stated that they already owe money to a payday lender.
7. Using Payday Loans For Utility Bills
Many Americans look to payday lenders to help them cover their utility bills, including water, electricity and gas and even internet. These basic living expenses are constantly increasing in price meaning that, if your income is not also rising, you will have less money to pay off your bills at the end of each month.
As such, many turn to payday loans to help them keep up with their utility payments, especially in periods where money is tight or an unexpected cost has put a dent in the monthly budget.
8. Borrowing Money Online For Emergency Car Repairs
Your car can break down or require maintenance at any given moment and you can not always plan for it. For these unexpected expenses, you may not have put money aside to cover these types of emergency and unexpected costs.
If you need money to cover a car breakdown or unexpected repair bill from a garage before your next paycheck, a payday loan can be a good way to get a cash advance.
9. Last Minute Travel Costs
Emergency situations can occur which require you to travel somewhere at the last minute. This could involve driving to another town or even flying to another state or country.
If this occurs, you may need to borrow money online fast in order to cover the payment. Although a payday loan may not cover the entire cost of the trip, they can help to cover some of the costs and make the journey more affordable.
10. Avoiding Overdraft Charges With Payday Loans
Payday loans are frequently advertized as a way to avoid overdraft charges. However, according to information from the Pew Charitable Trust, over half of loan customers end up over-drafting anyway.
A quarter of these cite the payday loan itself as the reason for the overdraft. This is because payday loans are notoriously difficult to pay back meaning that if you cannot originally afford it, you will need to constantly renew the loan. Often, payday loan customers spend more on fees than they receive in credit.
