Outrageous Facts About Payday Loans
The payday lending industry has come under increased scrutiny for allegedly preying on low-income borrowers and trapping them in a cycle of debt by charging exorbitant fees.
The loans allow consumers to quickly get their hands on a small amount of money, which is typically around $ 375 for borrowers in the United States, according to Pew Charitable Trusts.
Advocates of the loans say they’re a necessity for cash-strapped families who might need a few hundred extra dollars every now and then to help pay for groceries or utility bills.
And it’s easy to qualify: All you need to get a payday loan is a driver’s license, social security card, proof of income, and a bank account number.
But the fees charged by lenders are so high – up to 574% in some states – that many borrowers cannot repay loans on time and end up taking out a second loan to pay the interest, getting caught up in a cycle. debt, according to a new report from the nonprofit Milken Institute think tank.
We’ve compiled some of the most shocking facts about the payday lending industry from the Milken Institute report below:
In the United States, 12 million people borrow nearly $ 50 billion annually through payday loans.
Rates for payday loans can be as high as 35 times those for credit card loans and 80 times the rates for mortgages and auto loans.
Most borrowers owe payday lenders five months a year and typically end up paying $ 800 for a $ 300 loan.
The estimated annual percentage rate for payday loans in the United States ranges from a low of 196% in Minnesota to a high of 574% in Mississippi and Wisconsin.
Borrowers with six or more loans each year make up over half of all payday income in California, and they end up paying at least $ 525 for a $ 255 loan.
Payday loan shops tend to cluster in areas with the highest poverty rates. The six counties in California with the most payday lender stores per 100,000 residents have an average per capita income of between $ 17,986 and $ 26,300, compared to the state average of $ 44,980. The average unemployment rate in these counties is nearly 15.8% compared to the state average of 11.8% and one in five people live in poverty, compared to 15% nationally.