(Newswire.net — October 11, 2018) — CNBC’s recent survey found that 11% of Americans have taken out a short term loan in the last two years. These loans, banned in many states, have APRs of 400% in many cases – a staggering interest rate.
One man, a 33-year-old, took out a loan for $830, paid back over a 9-month period, although all he needed was a $400 loan. The lender would only supply the entire amount that the borrower was approved for and not a penny less.
High-cost loans have led 9.5 million people aged 22 to 37 to take out loans.
Baby boomers, ages 54 – 72, and Generation Z, ages 18 – 21, were less likely to take out a payday loan in the past two years: 7% and 8% respectively. Those that fit into the 22 – 53 age brackets have a much higher rate of high-risk loans, with 13% of people in these age groups taking out high-risk loans.
Rising costs of food and bills have led to 51% of millennials taking out these risky loans, which often have an APR that is 20 times higher than the average credit card interest rate.
There are lower options available offering higher-than-normal interest rates that are still a fraction of the cost of payday loan rates. Title loans are one example of a lower interest rate for smaller loans.
Finance charges with high-risk loans cost, on average, $520 to borrowers over the five-month period that borrowers take to pay back the loan. Overdraft fees add to this total, too, with many of the lenders requiring access to remove funds directly from a borrower’s account.
Student loan debt is a major concern for many borrowers, with the borrower in question having $40,000 in student loans on top of his wife’s $60,000 in student loan debt. CNBC notes that student loan debt is one of the main reasons for people in these age groups risking taking out riskier loans.
One-in-four millennials have $30,000 in debt with 11% having more than $100,000 in debt. The figure does include mortgage debt, and only 22% of people in the age bracket of 22 to 37 have no debt at all.
The report notes that the purchasing power of today’s paycheck equals that of 40 years ago despite earnings rising. Many borrowers are taking out payday loans to pay for everyday purchases and bills, such as paying for groceries or paying to keep their electricity hooked up.