“Would you take a taxi on a cross country trip?” asks the Consumer Financial Protection Bureau in an infographic summarizing the findings of their recent white paper on payday loans (and checking account deposit advances). Of course you wouldn’t take a taxi on such a long road trip because it would be expensive. Though they are quite expensive, and heavily warned against, many consumers still take out these dangerous loans. In its white paper, the CFPB confirms just how expensive payday loans really are.

Average Payday Loan Statistics

Consumers borrowed, on average $392 for 18.3 days. While payday loan terms are generally 14 days, some lending periods are longer based on the borrower’s pay cycle, e.g. monthly vs. bi-weekly, and state law. Average payday loan fees are $15 per $100, but since borrowers took out 10.7 loans, they paid a total of $574 in fees. Some borrowers paid more: 25% of borrowers paid $781 or more in payday loan fees.

Payday loan borrowers were indebted for an average of 196 days, which is more than half the year. A quarter of borrowers were indebted for an alarming 302 days.

Income Statics for Payday Loan Borrowers

Most people who borrowed payday loans had an annualized income between $10,000 and $40,000, the average income being $26,167. Only 15% of borrowers had income above $40,000 and only 4% made above $60,000. These numbers are based only on that of the borrower.

A significant amount of borrowers on the lower spectrum of the income range, less than $20,000, received public assistance or government benefits.

Frequency of Payday Loans

Nearly half the people (48%) who took out payday loans had more than 10 transactions within a year. In other words, these people essentially took out 10 or more payday loans in a year’s time. And 14% of borrowers had over 20 transactions. Borrowers who took out more than 10 loans account for 75% of the total payday loan fees paid.

Borrowers with seven or more transactions took out most repeat loans on the same day that the previous loan closed. So, they’re not actually repaying the previous loan.

The Trap of Payday Loans

Payday loans wouldn’t be such a terrible product if they didn’t cause a bigger problem – hundreds of dollars spent on fees, months in debt, and a financial hole that’s hard to fill in. What makes payday loans so hard to repay is that the borrower has to pay the funds back in a single lump sum out of their upcoming paycheck. If borrowers were allowed to make small monthly or even bi-weekly payments on the loans, it may be easier to repay. Of course, the loans would be an entirely different product.

As the CFPB finds, the only way a payday loan can work, under their current terms, is if the borrower has sufficient income to repay the loan and cover all the upcoming expenses. As the data shows, this isn’t often the case as shown by the continuous number of payday loan transactions.

The best way to avoid a payday loan trap is to never borrow one. Look for other solutions for your cash flow problems. It’ll be harder, but you’ll avoid becoming one of the payday loan statistics.

Source: Consumer Financial Protection Bureau