Millennials Are Turning to Payday Loans in Huge Numbers
A new study now reveals that 42% of millennials have turned to an alternative financial service, like payday loans. In fact, in the last 5 years, 28% of millennials with a college education have taken a payday loan. It also reports that 6% of other millennials without a college education are seeking these loans. And this number is increasing too. They also discovered that 30% of them were overdrawing their checking accounts. The college-educated millennials were found to be between the age of 23 and 35 years according to the results of the study.
Detailed analysis of the study revealed that millennials were struggling to deal with their finances, and turning to payday loans as this offered immediate relief. This is happening everywhere, in the US, the United Kingdom, and other parts of the world. Even startups like LendUp.com are reporting increased demand for payday loans.
Payday Loan – The Only Realistic Alternative
39% of people asking for payday loads have bank accounts and 35% are credit card users. In theory, therefore, they should have had other options to get cash. In reality, however, bank loans and loans from other conventional sources are often too complicated. It takes a lot of time too that many cannot afford. So that is one major reason why too many of them a payday loan seems like the only viable alternative.
Other Factors That Are Pushing Millennials Towards Payday Loans
One explanation that has been used to explain this trend is the lack of financial literacy. The study reports that just about 24% of millennials have basic financial knowledge. So Schuyler suggests that there should be financial literacy classes in high schools.
Desperation could be another factor. The study indicates that many millennials don’t have adequate savings that they can fall back on during difficult phases. Close to 50% of them said that they could not find the funds they needed in an emergency. This however isn’t just restricted to the millennials.
Are These the Only Reasons?
Some of this analysis could very well be true. However, it might be inaccurate to just blame them for the rising popularity of payday loans. Lawmakers in different states have been trying to impose stricter restrictions on such loans for a while now. There has been a lot of bad press about them in recent times.
But their popularity still seems to be growing despite all this. So there are deeper reasons. The payday loans and quick cash loans must be fundamentally right, at least by the public perception. Often, such a loan seems to be the only practical option for a lot of people as well, and they appreciate it.
Credit Score and Payday Loans
Another reason millennials are taking payday loans is because the process doesn’t affect their credit records negatively like other loans. It is a worry that a lower credit score might impact their jobs or ability to get a mortgage when needed. Sometimes they will be turned down by the traditional lenders. And of course, the payday lenders don’t look at credit scores while approving the loan. This means someone with a low score can get the money too.
Many of those in their early 20s used to believe that it was smart to avoid credit. Missing just one student loan payment has a greater impact on the credit score when you hardly have any credit history. Payday loans look like a good source when you have poor or no credit history.
Some critics have advised the millennials to take a second job, sell stuff, get into freelancing, save for an emergency, and do other things to make ends meet. But not everyone can do this. Finding a second job can be very difficult for most. Millennials have also been advised to seek financial help from family. That can also be a difficult proposition. Often, families aren’t able to help.
A payday loan is a small-dollar loan. Repaying this shouldn’t be a problem. The interest burden is also not too much as you have to repay after just a few weeks. So the ideal situation would be to take a loan when you need it and see off the first couple of years of your working career. Salaries are bound to improve at this time. You will then have more disposable income and lead a more comfortable life.