Who Borrows and Why?

A recent study by the PEW Charitable Trusts dispelled several myths about borrowers who take out short term loans. Here we analyze what type of expenses short term loans are primarily used for, and the effects of state restrictions on short term lending. We also explore borrowers’ backup plans if they didn’t have access to their short term lender. You just might be surprised by the conclusions.

What is the money used for?
While short term lenders boast of their convenience for emergency expenses, research reveals that only 16% of first-time borrowers use their loan money for unexpected emergencies. So what are people spending the money on? 69% actually use their funds for recurring expenses. Of that number, 53% of borrowers are paying off regular expenses like car payments, utilities, and credit card payments, while only 10% use the money to pay their rent or mortgage. 8% of all first-time borrowers reported spending their loan money on “something special.”

How do state restrictions affect short term lending?
Some states allow online short term loans, but prohibit brick and mortar stores. The overall effect? 95% of potential borrowers in these states decide to forego short term loans completely. Only 5% end up borrowing money through online lenders.

What are other options?
Borrowers reported that if they didn’t have access to a short term lender, they would take other measures to maintain their finances. 81% said they would cut back on expenses, while 62% would put off paying some of their bills. 57% would consider borrowing money from family or friends, as well as sell some of their possessions. Only 44% of borrowers, however, would seek a loan from a bank or credit union rather than through a short term lender.

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