WELCOMEGenerally, a payday loan is not required in the heydays of finance and economic stability. The prevalent economic condition in America together with steep taxes, necessitates widespread use of payday loans. In 1990, only 12 payday loan companies were known to exist in the U.S. In little more than a decade's time, their number grew by about 117% and was 14,000 in number in 2001. But the boom time was yet to come.
Once the economy got recession ridden in the middle of the previous decade there was serious liquidity crunch in the entire economy. And with fall of economic giants like Lehman Brothers, there were widespread layoffs. This resulted in people resorting to desperate measures to salvage their financial edifice from the recession ruins.
Though the parallel shadow banking industry was responsible for leading to such economic conditions, still it is here that short term loan instruments like payday loans assumed a major role in helping people out. As a result by 2006, there were some 24,000 payday loan companies in the U.S. Currently, the number has slid marginally to 22,000 companies across 36 states in the U.S.
The dependency on payday loans is also governed by demographic profile which in turn is also a financial and economic indicator of the population. This dependency obviously increases with financial vulnerability.
The gist of the individual studies conducted by The Pew Charitable Trusts and the Federal Deposits Insurance Corporation (FDIC) is that there are particular segments of the population prone to payday loan mode of borrowing. Pioneering these segments are white females, especially, single or separated parents. Even amongst the white females, it is the age group of 25 to 44 years that resorts to frequent payday loans. Also, the Hispanics and Afro-Americans, people who have immigrated recently and those without a four year college degree are the ones in the frequent payday loan net since all these segments face financial crunch between two consecutive pay chequesUsually, people with $ 40,000 or less annual income may need payday loans to meet even their daily needs, bills and expenses at least once a year considering the price-tax structure in the U.S. Now about 18% of the American population earns $ 25,000 or less annually. This explains the widespread payday borrowing by such segments. As per the findings of the Centre for Responsible Lending, 91% of the people resorting to payday loans are caught in this fast-cash cycle, which necessitates borrowing five or more times in a single year. Every borrowing here means huge rate of interest payment which the next pay cheque may or may not sustain and hence the need for wide scale repeat borrowing. The biggest advantage of payday loans is that it helps get loans almost instantaneously what with so many referral service portals working online to aid and assist borrowers. More importantly, the bracket of population regularly taking recourse to such loans usually does not have security collaterals to garner any other traditional loan from banks, etc and for these loans no such collateral is required.