Gone are those days when you could survive on a bare minimum amount. The cost of living is growing by leaps and bounds. Plus, there has been a tremendous upsurge in the lifestyle expenses in the last 10 years. People are accustomed to comfort nowadays. They need cars, big apartments, expensive gadgets, good foods, beautiful dresses, branded accessories, and so on. All these things need money and we all know that Americans are terrible at managing their expenses. Most of them live paycheck to paycheck, and when they’re run out of money, they borrow payday loans.
How many millennials turn to payday loans nowadays
According to statistics, 51% of millennials are taking out payday loans to fulfill their short-term financial needs even though the interest rates are sky high. Millennials are paying above 400% interest rate on payday loans. The sad part is, most of them know that payday loans are injurious to their financial health. Still, like an unhealthy addiction, millennials turn to payday loans when they need extra money.
According to cnbc.com, 11% of Americans have borrowed payday loans in the past 2 years. But Generation X (38 to 53 years old) and millennials (22 to 37 years old) rely on fast cash the most.
|
Generations |
How many of them borrowed fast cash |
|
Millennials |
13% |
|
Generation X |
13% |
|
Generation Z |
8% |
|
Baby boomers |
7% |
*Baby boomers – 54 to 72 years old
*Generation Z – 18 to 21 years old
Why millennials need payday loans?
Let’s be honest. Payday loans are an easy option. There’s no credit check. The loan processing time is short. Millennials can obtain the loan within 24 hours. Just imagine how fast people can get cash. When someone is in an emergency, obviously that person would want to receive money as soon as he can. Millennials love this aspect of payday loans.
Most millennials have grown up during the subprime mortgage crisis and the recession. They have experienced the acute financial struggle and have already developed a habit of living with debts. So it’s not surprising to see them borrowing payday loans for covering basic expenses like groceries, rents, and utility bill payments.
What about the older generations?
Older generations know the perils of payday loans. They know how payday loans ruined their financial lives when they were younger.
Generation Z borrowed payday loans mainly due to college expenses and only desperate baby boomers applied for cash advance in the last 2 years.
Why should millennials avoid payday loans?
The biggest drawback of a payday loan is its high-interest rate. It’s a short-term loan and the amount is small. But the interest rate is too high. For instance, a two-week payday loan of $100 has a finance charge of $75. This sounds normal till the millennials discover that the finance charge equals to an almost 1950% APR. Needless to say, millions of millennials get into debt and ask for solutions in debt forums every month.
Borrowers often refinance their payday loans when they can’t pay them off. As per the consumer watchdog CFPB, around 25% borrowers refinance their payday loans at least 9 times. According to the Pew Research Center, an average millennial borrows 8 payday loans of $375 each annually and pays more than $500 in interest.
Another drawback of a payday loan is that it’s not reported to credit bureaus. Needless to say, borrowers can’t see payday loans on their credit reports. Even if they make timely payments, that won’t help to increase their credit score. However, if payday loans are assigned to debt collection agencies, those items will be listed on their credit reports. In such a situation, their credit score will drop.
Also read – How can you get out of the payday loan debt trap?
Conclusion
Some states have banned payday loans owing to high-interest rates and finance charges. Some states have imposed restrictions on the payday loan companies also. In fact, CFPB has also proposed a few laws to help millennials and other generations avoid payday loan debts. If they are implemented from August 2019, many millennials will be saved from harassments.
Millennials should be extra careful. They should check out the state payday loan laws because most lenders try to manipulate them for harassing borrowers. Besides, they should look for payday loan alternatives. They should borrow from friends or take out a small personal loan instead of borrowing a payday loan.
It’s high time millennials build an emergency fund for taking care of their short-term financial needs. Those who can’t create an emergency fund should get an advance from their employers. At least, they wouldn’t have to pay 500% interests to their employers.
Some credit unions offer personal loans at an affordable interest rate. So that option is also open to the millennials.