It is estimated that about 12 million Americans will take out a payday loan this year. That is equivalent to about 5% of the population. Not only will they be turning to this high priced source of funding, but a number of those 12 million borrowers will in fact take out more than one loan over the course of the year. However that exact total of so multiple borrowers is difficult to measure, but it is bound to be a large number.
Pew Charitable Trusts also estimates that almost $8 billion on fees will be paid by these families during 2016. That is a ton of money that will not go towards their rent, food, or job training. Instead you can think of those billions of dollars in fees going to waste.
When someone takes on a payday loan, based on historical stats, they can expect to be in debt for almost half of the year. The average borrower will need almost 6 months to pay off their financial obligation. Often this involves in taking on more loans or uses other sources of borrowing. This is an incredible figure and shows just how difficult it is to break the cycle of borrowing.
Not only may they need 6 months to pay back the lender, but on an individualized basis they can plan on spending $520 in fees to do this. That is per loan originated. Then when you project those fees per er, by the 12 million or so borrowers, this is who you arrive at the total of around $8 billion dollars.
That is all terrible news. However there may be some relief in sight. It is estimated that sometime during 2016 that the Consumer Financial Protection Bureau will put into place new rules and regulations at the national level to cut back on this form of lending. Of course the upcoming elections may impact what type of laws can be passed by Congress this year.
If the Consumer Financial Protection Bureau is successful in further regulating the industry, the number of households turning to payday loans may decrease. However that won’t be felt until 2017 and later. As it will take time for the new rules to make a difference.
The new rules which may go into effect during 2016 will stop some of the more expensive payday loans. It will control the fees being charged, and ensure consumers have full disclosure over how much the loan may cost them. There will also be some controls put into place around interest rates being charged as well, but even if passed, they will be capped at an astounding 400% APR. While it may be hard to believe, even that is an improvement. Find a list of other sources of borrowing money, and read more payday loan alternatives.
There will also be some “safe” payday loans created during calendar year 2016. This will have a maximum term of 6 months. The amount if money available will also be based on the borrower’s income. So there will be more controls put into place by the government.
There are other changes that may occur. The Consumer Financial Protection Bureau will ensure that during 2016 that millions of American have information presented to them on other options as well. As there are dozens of alternatives, ranging from credit unions to regional banks and more.