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Who Uses Payday Loans?

The process of payday loans is usually like this: First, the borrower applies or requests for a payday loan. Second, the verification process. What is verified are the employment and bank account information of the applicant. And then, the borrower writes a post-dated check for the full amount of the money loaned plus the lender’s fee. The lender will deposit the loaned amount to the borrower’s bank. And then, as the payday comes, the lender cashes in the post-dated check issued by the borrower. The process is simple and practically anyone who has a job can take out payday loans.

Unfortunately, not everyone really uses payday loans. People with good budgeting skills rarely need payday loans. And people who have set aside some savings have money to spend when a financial emergency strikes. The main borrowers of payday loans can be grouped into four categories.

The first category is the group of young consumers who have a limited understanding of finances. They are just starting out in the school of life and quite excited about the buying ‘powers’ brought by their jobs. When they overspend and found themselves short on money, they see payday loans as the easy solution. They haven’t realized yet that their overspending was the problem.

The second category is the group of consumers who are struggling to meet both ends. They can barely shoulder their day to day expenses. And usually, the main reason for this is that the salary they get from their jobs isn’t sufficient to support them and their family. A payday loan will also seem an easy solution. But the relief that a payday loan gives them is short-lived. And in the next payday, they will be facing a greater financial obligation.

The third category is the group of consumers who are already buried deep in debts. For these people, borrowing money no longer feels foreign to them. Thus, taking out a payday loan is easier. But, the payday loan is not an answer to their dilemma. They need a more drastic lifestyle change in order to significantly trim down their spending. Perhaps, they will need professional help from a credit counseling agency.

And the fourth category is the group of people who have blemished credit history. Payday loan lenders do not check the credit history of a borrower. They also do not evaluate whether the borrower is capable of paying the loan or not. Thus, when a person with a tarnished credit history needs money, he goes to payday loan lenders.

Most of the consumers we described often extend their loan, a process called roll-over. After some months and with inflated loan interests, the borrower ends up worse than when he was before he took out a payday loan.

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