Payday Loans Market 2021 Rising Trends and Forecast for 2022

Almost every fifth borrower in the USA has a debt to microfinance organizations, according to Equifax, a credit reporting agency. At the end of last year and early 2021, the influx of clients who took out payday loans ( also known as cash advances )increased, including due to those who previously took out loans from banks.

The share of applications for payday loans has grown significantly

Experts explain this by the growing positive image of the sector and the popularity of microfinance among different segments of the population.

According to Equifax, in July 2021, 15.5% of applications submitted by Nebraska residents for a cash advance loan were requests for amounts ranging from $700 to $1,000 and more. A year ago, the share of such applications was 13.1%.

At the same time, the average value of the personal credit score for a borrower requesting a large loan in Nebraska was significantly higher than that of a borrower with a small loan: 543 points against 483 points. This means, when satisfying applications for a loan, lenders are guided by the financial reputation of the client, that is, his or her credit history.

The authors of the study also note that there is a significant scatter in the credit score value in various states, which can differ significantly from the average for the USA (698). Thus, the average credit score for Nebraska is 728, for Alabama – 686, for Alaska – 714, for Arizona – 706, for Colorado – 725, for Delaware – 710, for Florida – 701, for Georgia – 689, for Hawaii – 727.

Judging by the graphical data of Equifax, the share of applications for “large” cash advance loans has been growing on an annualized basis for three months in a row.

The high level of technological development and the growing positive image of the microfinance sector are attracting more and more clients to it. Many large payday lenders in Nebraska reward borrowers with a high personal credit score by offering them larger amounts and lower rates. Taking into account the speed and quality of service, cash advance online same day is becoming more and more popular among different segments of the population and helps them in solving short and medium-term financial problems.

A third of borrowers took out payday loans for the first time in 2021

One in three Americans who took out a cash advance loan from microfinance organizations in the past year did so for the first time during the pandemic, according to a study.

The 2021 restrictions imposed in connection with it worsened the financial situation of Americans: 70% of Americans have a decrease in their income. The reasons include job loss (31%), unpaid leave (18%) and unforeseen expenses due to illness (16 half of those surveyed in 2021 reduced their expenses, however, for a fifth (22%) of Americans, despite the self-isolation regime, monthly spending increased.

Thus, 29% of the borrowers surveyed were forced to apply for a payday loan online for the first time in 2021, 20% began to do it more often than before, and only 10% of borrowers began to apply for a cash advance loan less often, and 22% never used the services. The main reasons for obtaining payday loans were the purchase of essential goods (52%), refinancing and repayment of other loans (30%), medical treatment (17%), utility bills (15%) and the purchase of clothes and shoes (11%).

The majority of borrowers (90%) took out one-time loans in the amount of up to $1,000. At the same time, almost two-thirds of borrowers admitted that it became more difficult to repay loans during the pandemic. Difficulties experienced 71% of those who took out more payday loans than usual during this period. A similar opinion was expressed by 66% of borrowers who took cash advances for the first time in 2021. The majority of Americans (79%) paid off their debt to microfinance institutions in full or in part by September. However, every fifth borrower (21%) has not yet done so.

1,015 people took part in the survey.

More than half of payday loans were issued online in 2021

The share of online loans to citizens in the microfinance organizations market for the first time exceeded 50% of the total volume of loans to individuals. The pandemic is driving the transition to remote service channels. Such data are presented in the review of key indicators of microfinance institutions for the 1st quarter of 2021.

In the review, financial experts note that other structural changes have continued – the terms and volumes of loans are growing. An increasingly significant part of the microfinance portfolio falls on 30-day payday loans not exceeding $1,000. Their volume amounted to $1,98 billion. At the same time, the volume of loans for smaller amounts and shorter terms amounted to $849 million. The authors of the review associate this with the regulatory changes of recent years.

An analysis of microfinance institutions operating in the USA showed the regulator’s experts that the share of companies that switched over the last year to the segment of longer-term payday loans (up to 30 days and more) is almost double the number of companies that switched to the category of short-term payday loans (1-2 weeks).

Category: General Info

Tags: economy, finance, money, online loans, payday loans