According to a CNBC Make It and Morning Consult survey, all generations have used a payday loan. 11 percent of Americans have used the services of payday loan lenders, but it’s the Gen Xers and millennials that use them the most. 13 percent of these two generations have used a payday loan in the last two years. This is compared to just seven percent for baby boomers and eight percent for Gen Z.
About 51 percent of millennials have thought about getting a payday loan, which isn’t that big of a surprise considering the housing crisis and recession. The biggest reasons people get a payday loan is rent, groceries and utilities. Around 38 percent of Gen Zers have debated taking a payday loan out as well, mainly because of college-related expenses.
Older generations either see the negative aspects of getting a payday loan or have already experienced them already. 16 percent of Gen Xers have debated about a payday loan compared to just seven percent of the baby boomers.
Negative Aspects of Payday Loans
There are several reasons not to get a payday loan? For example, the interest rates are high, which makes the short-term, small loan much bigger than you realize. For instance, a two-week $100 loan has a finance charge of $75. While it sounds reasonable, the finance charge is actually nearly 1950 percent.
Lenders “helped” consumers who couldn’t pay their loans back by rolling the loan over. The Consumer Financial Protection Bureau said nearly 25 percent of loan borrowers would re-borrow the loan nine times before they paid it off.
Payday loans don’t help a person improve their credit score but can hinder it if a person doesn’t repay the loan and it goes into collections.
There are about 23,000 payday lenders throughout the U.S., but some states have banned them altogether, and others have limited their effects by introducing interest rate caps and usury limits.