In a study entitled, “An Analysis of Consumers’ Use of Payday Loans,” written by Gregory Elliehausen, a member of the Division of Research and Statistics, Board of Governors of the Federal Reserve System and Financial Services Research Program, The George Washington University School of Business, he described the demographic characteristics of payday installment loan borrowers and considered whether they make rational decisions and benefit from the loan. As noted, Elliehausen said that only 2% of U.S. adults use payday installment loans at any one time. He has also provided a detailed picture of the typical payday loan borrower, including who they are, how they use the service, and their decision-making process.
According to the report, borrowers that use payday installment loans have the following personal details:
· 63% have children at home
· 41% earn between $25,000-$50,000, 39% have incomes $40,000 or more
· 90% have a high school diploma, 54% have attended college or a degree
· Have limited liquid assets and savings, but mostly use other forms of credit
· Have characteristics that may limit their access to credit
· Use payday installment loans moderately and intend them for short-term use
· Aware of the cost of their payday installment loans
· Have considered other alternatives, but are satisfied with their decision to take out payday installment loans
With this, Elliehausen concludes that, “Most payday installment loans are used to pay unexpected expenses or expenses that could not be postponed…If payday installment loan borrowers live from paycheck to paycheck with very little discretionary income, even small expenses can cause financial problems. In such cases, even frequent use of payday installment loans can be better than the other alternatives.”
In 2009 the George Washington University School of Business also released a comprehensive economic analysis for the consumer demand and use of payday installment loan services. The study was conducted among a national representative sample of borrowers from the CFSA member loan companies. It was found that:
· Borrowers are overwhelmingly satisfied with their payday installment loan.
· 86% of borrowers believe that they are a useful financial product.
· 88% were satisfied with their latest transaction.
· Borrowers use the service responsibly.
· 71% of borrowers use payday installment loans to cover unexpected expenses or a temporary shortage of cash.
· 58% of borrowers did not renew their loans and those that did only renewed 1-4 times.
· Borrowers understood the cost of the service.
· 95% of borrowers were aware of the finance charge and compared it with similar fees from various lenders.
· 81% of borrowers recalled that the fee was disclosed as an APR, although most could not recall the exact rate.
· Most consumers come from middle-income, educated young families.
· 32% of borrowers own homes and have steady incomes and checking accounts.
· 53% are under 45 years old; only 9% are 65 or older
· Majority of customers are married with 63% have children in household
With these figures, we can say that payday installment loans customers are now starting to be the face of America. Both men and women with families and jobs, who have unbudgeted or unexpected expenses between paychecks and need short-term credit to meet their obligations, are dependent on the use of these types of loans. In fact, analysts estimate that 19 million households use short-term payday installment loans annually. Truly, the industry has helped people with cash needs.