Who Benefits Most from Access to Payday Loans?

Now more than ever, millions of Americans need alternative sources of lending available to them. In the wake of the Great Recession, many people who faced foreclosure, job losses, and other financial struggles saw declines in their credit scores and reports. This effect can still be felt in today’s economy in many ways.

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While some may have a particular image or stereotype of those who struggle with finances, the truth is that people in need of quick access to cash closely resemble America as a whole. Across gender, racial, ethnic and generational lines, millions use payday loans to cover various expenses, pay bills or handle emergencies.

With that being said, some groups actually do benefit more than others from access to these services. Who are they and how do they benefit? Let’s take a look at these groups and make the case for why payday lenders provide a vital service.

Working People

The single biggest group of people who benefit from access to payday loans is working people. By definition, payday loans are designed to provide workers with the ability to make ends meet until their next paychecks arrive.

Given that close to half of all people lack $400 in the event of an emergency, most working people know all too well what can happen without a moment’s notice. Many common mishaps meriting the need for emergency cash include:

Medical issues and health emergencies

Burglary or theft

Automobile issues and accidents

Unexpected moving expanses

Children’s needs in school or elsewhere

Because of this, many payday lending companies operate in areas where higher concentrations of working-class people live. By being close to the people who need assistance the most, both lenders and borrowers benefit. In particular, working people – who have relatively little free time to hunt down lending options – benefit greatly.

Students

Another major demographic of people who benefit from payday loans are students. This might not be the first group that comes to mind for many, but student payday loans are more common than people realize.

One survey by CNBC found that nearly 40 percent of college-aged students have considered using payday loan services, while close to 10 percent had already used payday loans at some point. Furthermore, 1 in 8 college-aged people had considered using student payday loans as a means to cover direct college expenses.

Given that many college students also work part-time or full-time jobs, using their paychecks to access payday loans for students isn’t unrealistic. Likewise, considering the sheer cost of college education and the fact that many students live away from their childhood homes, unexpected expenses can and do often arise.

These life ingredients ensure that student loans via payday companies will remain a viable course of lending for this group.

Those With Bad Credit

Not everybody has maintained – nor can maintain – pristine credit scores and histories throughout their lives. Many factors can suddenly derail otherwise fiscally responsible people and cause their finances to become difficult, including:

A sudden loss of employment

Emergency or prolonged medical expenses

Unexpected additions to the family (children, elderly family members, etc.)

Auto or home repairs

As with all decisions in life, people are required sometimes to choose between which expenses should be prioritized and which can be ignored. The end result can often be a decline in credit scores and reports, making it impossible to borrow from traditional lenders.

For those who are employed and who have bad credit, payday lenders feature prominently in their financing decisions. Whether it’s a payday loan for a student or one for a semi-retired worker, these services ensure that borrowing is possible when traditional lenders won’t take a bet based on credit history.

Communities in Banking/Credit Deserts

One group that many people do not consider – and one that doesn’t have a clean, neat identity – are those who live in what are known as “banking and credit deserts”. These communities can be found in rural, urban, and suburban areas, but the one thing they have in common is simple: traditional banks, credit unions, and other lenders do not service these communities.

From 2001 to 2019, more than 500 banks in the United States failed. In addition, many other individual branches or banks were bought out or closed by their owners. In both cases, banks that closed or failed tended to be in areas where banking options were already severely limited. Coupled with decades of discriminatory lending policies based on processes such as “redlining”, the proliferation of banking and credit deserts is a real problem.

In the absence of traditional lenders, businesses that offer payday loans for students, workers, and even the elderly have appeared in these communities. As such, workers living in banking and credit deserts would have no other options within close proximity to their homes and neighborhoods if access to payday loans disappeared.

Recent Movers

One of the costliest common occurrences for people is the act of moving. Whether it’s a move to another part of the same city or a cross-country journey, the costs associated with transitioning to a new home can be quite substantial.

For a local move, prices can range from $500 to $1400

For an interstate move, costs can be $2000 to $6000

Regardless of where the money comes from, securing the finances to ensure a quick and orderly move is vital. This is why individuals in need of liquid assets to afford a move benefit from payday loan access. Many of the same people who move most often also have the least amount of disposable income, according to 538.

Particularly for local moves, securing the finances necessary to put down a deposit on a new apartment, rent a moving truck or purchase needed appliances can often be accomplished through quick access to payday lending services.

People Needing to Fill the Financial Gaps

For most people, borrowing money from a traditional lender comes with a variety of requirements and stipulations. Most notably, it is illegal to borrow money for one purpose and then use it for another. Yet many people struggle with making ends meet in broader terms, whether it be caused by a reduction of hours at work or unexpected expenses.

Student payday loans, payday loans for workers, and short-term loans for everybody in between are beneficial because the money can be spent however it is needed. For those seeking to fill in the gaps on bills, they can easily allocate specific amounts to each item due. With a traditional loan, borrowers would have to list specific expenditures that the loan would be designated for – and rarely do traditional lenders give loans to cover multiple expense types.

If someone is short on cash – but doesn’t necessarily know where they’ll need to spend the difference over the next couple of weeks – then payday loan access is absolutely vital.

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Recurring Borrowers

Many traditional lenders do not provide direct incentives to borrowers who take out a series of loans and repay them on time. While indirect benefits such as improved credit scores are an advantage, you won’t necessarily reap many additional benefits.

However, with many payday lenders, recurring borrowers who successfully pay off their loans can enjoy increased borrowing limits as time progresses.

While most states do not allow people to borrow vast sums via payday loans, first-time borrowers may find themselves restricted even more so in the borrowing process. For example, a payday lender may restrict a new borrower to $400, but gradually raise their limit to $1,000 if they successfully borrow multiple loans and repay them on time.

This can allow for greater flexibility during tough economic times and helps those who rely on payday loans to earn some benefits from using the process responsibly.

Tens of millions of Americans can benefit from access to payday loans in a variety of circumstances, but some groups naturally enjoy more benefits than others. From those with limited options for traditional lending to those who are on-the-go as students or frequent movers, access to this vital type of lending ensures sustainable finances for many.