The PEW Charitable Trusts’ continued study on cash advances and payday loans offers much insight into these short-term financial options. PEW Research Center is a nonpartisan group that informs the public on various trends around the world. This particular study examined who applies for the loans. It discusses how these types of loans help and/or hurt customers. The study’s results present important data concerning gender, race, income level, and demographic roles concerning the short-term loan industry. The second part of this study focuses on answering questions about why borrowers choose to use a cash advance, and how the payoff occurred. The study shares their opinions and feelings about their short-term loan experience.
When Cash Advances Are Helpful
PEW findings show that almost 60% of borrowers have trouble meeting monthly costs. These loans are used to compensate for cash shortages rather than emergencies. Short-term loans are helpful when used occasionally, not to depend on regular everyday living costs. If a borrower is having trouble making it through to the end of the month, the fees for these cash advances will only add to the money troubles, never mind the effects of the high-interest loan if not paid off on the original due date.
Vicious Cycles Of Cash Advances
A critical finding showed that fewer than 20% of borrowers can afford to repay an average cash advance loan. Most borrowers would only be able to pay $50 towards the loan per two week term period, which generally will only pay the fees/interest. Without extra money to pay down the principal, these loans do not get paid off. The study’s findings explain why so many borrowers request loan extensions or reapply for a new one to pay off the old. Administrative data shows that just over 75% of these short-term loans are customers renewing or reapplying for a new loan to pay off a current loan.
Why States Are Concerned
When people are unaware of the possible financial effects of these loans on their budget, it’s concerning. Borrowers do not have a realistic grasp on their finances and are too desperate to think about the aftermath. The choice to obtain a short-term loan becomes detrimental to their financial affairs. Data showed that over 35% of borrowers find that desperation influenced their decision to apply in the first place. In addition to this concern, borrowers would have accepted a loan on any terms by any lender. Desperation adds stress to financial matters and pushes a borrower to obtain a loan from a predatory lender. Storefront lenders may not be allowed in certain states’ boundaries, but online lenders find ways to increase their chances for new customers based on the desperation factor alone.
Find the Right Payday Lender
Finding the right lender is an important piece to successful cash advances. Responsible lenders will not have the highest interest rate, disclose all fees, and borrow money based on income to promote proper payment. Lenders do not view credit history, nor are they privy to the debt to income ratio. A borrower must use discretion as to how much they can afford to pay back in just a few weeks. Short-term loans are set up to help with emergency costs. If you are going to use a cash advance to keep up with regular bills, this loan is not the solution to your long-term financial needs.
Make Sure You Mean Short-term
If you are finding yourself needing a permanent financial fix, research other options. Cash advances tend to have higher charges than other loans. They are made for emergencies such as your car breaking down, or your utility bill shut off notice. Payday loans also are short-term fixes. These online loans should be taken and paid off within 2-3 weeks. Earnestly try not just to pay the interest and pay off the next payment cycle. That will rack up the total cost of the loan and set you back financially. You do not want to get stuck in that cycle.
Financial Assistance Programs Available
In our current financial climate, there are other financial assistance programs. Ask friends and research online to see what you might qualify for. You may be surprised by what the government is giving out. There are programs for tuition aid, food assistance, affordable rental housing, and much more. Who knows? If they can pay for something you are currently paying for now, you will have more to put elsewhere. Financial freedom can be closer than you thought.