Even if you’ve never needed one, you probably have heard of payday loans. These ultra-short-term, high-interest loans are the only source of immediate funds for many cash-strapped Americans. However, as these payday loan statistics show, there’s a lot that one needs to be cautious of when using this financial service. The payday loan industry provides an essential service to people in need and without the means to source funds from other traditional avenues. At the same time, its fundamental nature can prove predatory if borrowers overlook the risks. These stats and the following FAQ will hopefully build your awareness of this service and prepare you to better utilize it without falling into a debt trap.

Payday Loan Statistics (Editor’s Choice)

• On average, payday loan users spend $520 in fees to borrow $375.
• The odds of payday loan usage are 62% higher for those earning less than $40,000 annually.
• People in the 25 to 49 age group are much likelier to use payday loans.
• The APR interest on a $300 payday loan in the US can be as high as 664%.

The average payday loan default rate is 6%, the same as the typical credit card default rate.

General Payday Lending Statistics

1. Three out of 4 payday loans go to borrowers who take out 10 or more loans per year.

A large part of the payday loan economy can be predatory, targeting underbanked or low-income individuals with extremely high-interest rates. As a result, borrowers often fall into a debt trap, which means that they keep having to borrow repeatedly to pay back what they owe.

(CFPB)

2. 15% of new payday loans start a 10-loans long sequence.

Half of all outstanding payday loans in the US are further part of a sequence that is at least 10 loans long. Statistics about payday loans show that this constant rolling over of loans to repay past ones, which keeps adding to the fees, contributes to the bulk of the revenue of lenders.

(CFPB)

3. The average lump-sum payment uses up 36% of the borrower’s paycheck.

Imagine being cash-strapped and desperate enough to take a loan at a 400+% interest and then being forced to use up your next paycheck to repay it. It’s no wonder then that so many borrowers cannot repay the full payday loan amounts and end up having to borrow again.

(Pew Charitable Trusts)

4. Nearly 70% of payday loan users borrow to cover a recurring expense.

Among the widely believed payday loan facts is the notion that these short-term loans are meant for emergencies. However, studies have found that most payday loans in the United States are used to cover regular expenses like utilities, credit card bills, food, rent, or mortgage. Only about 16% use them for unexpected expenses such as car repair or medical emergencies. 

(Pew Charitable Trusts)

5. Consumers fork out $520 in fees on average to borrow $375.

The average payday loan user is in debt for five months of the year. This is because taking out a single loan does not solve the payment needs of many borrowers. Payday loan statistics further show that the high fees—an average of $55 for two weeks, the typical term for a payday loan—mean that any delay, rollover, or additional borrowing adds substantially to the debt burden.

(Pew Charitable Trusts)

6. The annual percentage rate (APR) on a $300 payday loan can be as high as 664%.

Payday loan rates by state can vary substantially. Apart from the states that have prohibited payday lending altogether, some have implemented interest caps on short-term loans. In states with no such caps, however, consumers can end up paying through their nose. Payday loan statistics by state show that jurisdictions with typically high APRs include Texas (664%), Utah, Idaho, Nevada (652%), as well as Mississippi, Montana, and North Dakota (521% to 527%).