Why are payday loans so popular? When you start seeing payday loan places all over your town, and go online and see advertisements for them everywhere, you might wonder: why are payday loans so popular?
If you’ve never had the need to take one out, you should consider yourself lucky. However, you are actually in the majority though, as only 5 percent of the population has ever taken out a payday loan. This means that they are not as popular as they might seem, although there are plenty of establishments doing good business from that 5%.
The reason they’re all over the place is that those that do use payday loans tend to use them over and over again. They make their biweekly trip to the payday loan office to pay back their loan and then take the same money out again. Their caught in a horrible cycle of debt that simply takes money from them every month, and keeps them from getting ahead.
Why Are Payday Loans So Popular? Answer: They’re Not.
So, you might think that it’s a sign of the times that there are so many payday lenders, and it could be, but the real story is that there will always be people that run into financial disasters, or that are habitually bad with money. They never learn their lesson until they are in a dire situation, and that’s why they end up at the mercy of a payday lender and their absurd rates.
The interesting thing to note is that if the economy does well, payday lenders make even more money. This is because the more jobs people have, the more paydays there are, and the more potential customers they have. If unemployment is high that means there are fewer people eligible to take out a payday loan, and times can even be tough for payday lenders, forcing layoffs themselves.
People Know The Score
You might be wondering why are payday loans so popular if people know how bad the rates are. Most users of payday loans are not oblivious to the fact that it is akin to highway robbery, and they have laid awake at night trying to think of a viable alternative. They didn’t just wake up one morning and decide they were going to take out a payday loan. Some circumstances have presented itself, and they’ve racked their brains or exhausted all other options and this is their last resort.
Many times they have either borrowed from family members before and not returned the money, or they have abused their credit and aren’t able to get loans from the bank. Or they have maxed out their credit limits and have nowhere else to get the money. Other people just have too much dignity to ask their friends and family for money and they would rather pay the fees and keep their good name intact rather than show they have financial troubles.
And if you’re still not convinced on why are payday loans so popular, it’s because Americans are some of the worst savers on the planet, and therefore when some major life event happens there are under-equipped to handle it, and must then turn to drastic measures in order to make it through another month. In many instances a simple savings account of $1000 or even $500 would erase the need for a payday loan, and so users of payday loans are basically admitting that they have zero savings.
Financial advisers recommend 6 months of living expenses in an emergency savings account, and if people could muster that up, the payday loan industry would vanish in short order. That may seem like a big goal to reach, but if people spent 2-3 years steadily putting away a little bit each month, they wouldn’t need a silly $600 payday loan if they got into trouble.
So long answer short: Payday loans aren’t as popular as they seem, but the majority of users use them so much that they seem like they’re very popular. The biggest reason they’re able to stay in business is that people aren’t very good at setting up a savings account for emergency situations, and also because payday loans are set up to keep you trapped in the process of re-loaning from them again and again.