The average borrower will pay $475.73 in finance charges to borrow $366.94 in less than 4.5 months. If we stretch this out to reflect the way payday loan debt compounds, you will see how the average payday loan borrower will incur $2,492 in debt in a single year, with as much as $738 in associated financing costs.
- 7.84 loans per person.
- 62% of loans will be refinanced.
| Size of Loan | Probability of Refinance |
|---|---|
| $400-$500 | 70% |
| $300-$400 | 65% |
| $200-$300 | 55% |
| $100-$200 | 50% |
| $0-$100 | 38% |
The more you borrow from a payday loan company, the more likely you are to be buried by the debt, and require additional payday loans to continue servicing the obligation.
- $366.96 average loan amount.
- Average finance charge = $60.
- Average loan term = 18 days.
- 55% of loans remain unpaid for less than 14 days.
- 26% explicitly for 14 days which equals 1 pay period.
- Average loan APR = 300% – 500%.
- 95.6% of loans are written for the maximum amount legally allowed.
| Loan Characteristics | Payday Loan | Conventional Loan | Credit Card |
|---|---|---|---|
| Yearly Interest Rate (APR) | 343.41% | 6.5% | 19% |
| Term Length (days) | 18 | 60 | 60 |
| Average Amount | $366.36 | $5,000 | $1,500 |
| Finance Charge | $105 | $9 | $20 |
Compared to a conventional loan, a payday loan will charge its borrower 52x more interest, or 18x more interest than even an average credit card. The will then only lend a fraction of the funds.
| Qualifying Characteristics | Payday Loan | Conventional Loan | Credit Card |
|---|---|---|---|
| Credit Score | N/A | 650 | 550 |
| Net Worth | N/A | 3x the debt | N/A |
| Debt-Servicing Ratio | N/A | <.4 | N/A |
| Relationship With Bank | N/A | Yes | N/A |
| Time to Borrow | Instant | 1-3days | 1-5days |
The chart below represents values based on borrowing $300 dollars and repaying that debt in one month.
| Type of Credit | Finance Charge | APR | Total Paid |
|---|---|---|---|
| Credit Card Cash Advance (AVG) | $14.00 | 57% | $314.00 |
| Credit Card Cash Advance (high-cost) | $19.00 | 76% | $318.00 |
| Small Personal Loan | $9.00 | 36% | $309.00 |
| Payday Loan | $105.00 | 426% | $405.00 |
The chart below represents values based on borrowing $500 dollars and repaying that debt in one month.
| Type of Credit | Finance Charge | APR | Total Paid |
|---|---|---|---|
| Credit Card Cash Advance (AVG) | $49.00 | 29% | $549.00 |
| Credit Card Cash Advance (high-cost) | $67.00 | 39% | $567.00 |
| Small Personal Loan | $38.00 | 36% | $538.00 |
| Payday Loan | $700.00 | 426% | $1,200.00 |
Compared to a conventional loan, a payday loan is obviously more accessible. However, compared to a simple credit card, the only difference is that it takes a few days longer for the borrower to gain access to money because they need to wait for the card to be mailed to them.
By waiting two days for a credit card to be express mailed to them, instead of taking out a payday loan, a borrower is saving approximately $300 in finance fees. This has the same impact as working full time for $18.75/hour for two days!
