Survey: Payday Loan Use High, Savings Alarmingly Low

Payday loans are generally considered an emergency option, but as families struggle to pay for essentials like gas, groceries and rent, more people are using them as a financial lifeline.

According to a new survey, almost half of Americans have used payday loans to cover some type of expense. But the tight repayment schedule makes it difficult to come up with the money to pay off the loan in two weeks, and one-third of the borrowers were unable to pay the the loan as planned.

They’re so popular that there are about 23,000 payday lenders across the country — that’s twice the number of McDonald’s and Starbucks. The loans are expensive for borrowers, but very lucrative for payday lenders — it’s a $9 billion industry. The national average annual percentage rate (APR) is 400%, but that’s just the beginning. About 80% of payday loan borrowers can’t afford to pay back the original loan, which leaves them trapped in a long-term cycle of debt.

Oct. 31, 2023 is World Savings Day, a day designed to inform residents across the globe about the importance of saving. To mark this, DebtHammer surveyed more than 1,000 Americans to learn how they use short-term loans and whether they have enough savings to cover a sudden expense.

Unfortunately, Americans still fall short. Almost half of survey respondents said they don’t have enough money saved to be able to cover an unexpected $400 expense, and 10% said they’d experience severe depression or other mental health problems if faced with this situation.

Table of Contents

  1. Key takeaways
  2. More findings
  3. The bottom line
  4. Methodology
  5. The experts weigh in

Key takeaways

They can’t afford to repay the loan: Though a $200 loan with a $30 fee doesn’t sound like much, borrowers simply can’t afford to make the lump-sum payment in two weeks. 19% repaid their loan late, while another 14% got an extension or rolled it over into a new payday loan. About 5% never repaid the loan at all. 

We’re using loans to repay other loans: More than half of payday loan users borrowed from a payday lender and used the money to pay another loan.

  • 14.5% to repay a different payday loan
  • 16% to make a student loan payment
  • 11.5% to make a payment on a car loan
  • 12% to pay another type of loan

We still aren’t saving: Almost half of Americans said they don’t have enough savings to cover an unexpected $400 expense, and 5% said they’d experience severe depression or other mental health problems if faced with this situation.

  • 5% said they would simply have no way to pay it
  • 8% would use a payday loan
  • 3% would use a tribal loan
  • 6% would skip paying another bill
  • 3% would have to default on rent/risk homelessness
  • 2% would have to file for bankruptcy
  • 2% would try to borrow money on Reddit
  • 2% would set up a crowdfunding campaign

More findings

Other ways survey respondents said they’d try to pay a $400 expense include:

  • 10% said they’d have to reduce spending in other areas
  • 24% would use a credit card and pay it off over time
  • 6% would apply for a new credit card
  • 4% would apply for a Payday Alternative Loan
  • 4% would try to borrow through a cash advance app like Dave
  • 6% would try to set up a Buy Now Pay Later payment plan
  • 10% would ask friends or family for help
  • 2% would borrow money from a peer-to-peer lender

Once isn’t always enough: While just under half of respondents said they’ve used payday loans, 8% have had more than one payday loan at a time. 15% have juggled combinations of payday loans, Buy Now Pay Later plans and loans through cash advance apps like Dave or Albert.

We use the loans to pay for essentials: 31% used a payday loan to pay for groceries, 45% paid a household utility bill, 22% used it to cover the rent, 16% used it to pay for gasoline, 5% paid for transportation to work.

17% used the payday loan for medical treatment or medical bills, and 15% used it to cover a household emergency. 9% used it to pay for miscellaneous school expenses for the kids.

Not all payday loans are used for essential items: 41% have used payday loans to cover nonessential expenses, like gifts and entertainment. 

  • 4% bought concert tickets
  • 4% bought cryptocurrency
  • 4% used them to pay for birthday gifts
  • 7% used them to pay for holiday gifts
  • 5% used them to pay for other holiday expenses like meals and decor
  • 3% used them to buy government bonds
  • 5% used them to invest in the stock market

The loan products are confusing: 14% of payday loan users don’t know whether their loan was through a traditional payday lender or a tribal lender (a lending company affiliated with a Native American tribe.) Tribal loans are particularly dangerous because sovereign immunity allows the lenders to sidestep state laws and consumer protections. Some borrowers are being tricked into installment loans with annual percentage rates of 1,000% or even higher, despite state laws capping payday loan interest rates.

We’re also using non-traditional borrowing: 14% have used a Buy Now Pay Later plan to split up payments for an item they couldn’t otherwise afford. 10% got a short-term loan through a cash advance or earned wage access app (like Dave or PayActiv).

We don’t understand Payday Alternative Loans: Just under 1.5% have tried a Payday Alternative Loan, a better, lower-cost alternative offered through federal credit unions. 

Proximity doesn’t always matter: 44% have borrowed through an online payday lender, 42% from a storefront payday lender and 10% used a combination of the two. 19% knowingly borrowed from an online tribal lender.

We disapprove of payday lenders (but that doesn’t stop us from borrowing): 63% of survey respondents believe that payday lenders are predatory and take advantage of borrowers’ desperation, while another 16.5% were unsure. Fewer than 20% said they consider payday loans a good option or believe they help borrowers who have bad credit.

The bottom line

It’s no secret that payday loans are difficult to repay. However, that doesn’t appear to deter borrowers who are looking for some quick cash, whether they need to pay for a necessity or use it for holiday gifts or tickets to a sporting event. 

And the lack of savings shows just how tenuous Americans’ finances are. Many households are one sudden illness or unplanned car repair away from dire consequences, including skipping bills, considering bankruptcy or dealing with mental health ramifications.


DebtHammer collected survey responses from a random sample of more than 1,015 adults aged 18 or older via SurveyMonkey from Oct. 14-16. All respondents live in the United States. Each response was anonymized using a unique user ID.

Of those we surveyed, 63% identified as female and 37% identified as male. About 19% of respondents were aged 18 to 29, 30% were aged 30 to 44, 34% were between ages 45 to 60 and 17% were over the age of 60.

The experts weigh in

What’s the one piece of advice you’d give to anyone struggling to afford day-to-day expenses?

Dr. Monica Zimmerman

Professor and Executive Director of the Cottrell Entrepreneurship Center at West Chester University

Learn about financial literacy.  There are many free videos, podcasts, and books that help you manage your expenses, consolidate debts, and identify advisors or credit counselors.  You are not alone. Many persons who struggled to pay their day-to-day expenses learned how to manage their expenses, became debt free, and built financial security.

Wenyao Hu

Assistant professor in the Department of Law, Economics, Accounting, and Finance at New York Institute of Technology’s School of Management

Improve your financial literacy. You need to understand the actual compatible costs for each lending product in the market. For instance, a $10 charge for every $100 borrowed in 2 weeks (equivalent annual rate is around 260%) is much higher than $20 charges for every $100 in a year (equivalent yearly rate is 20%). Understanding the relationship between time intervals and interest rates would be crucial for individuals to get rid of debts. There are countless free resources online, in libraries, and offered by community organizations that can help improve your financial literacy.

What steps, in your opinion, can people take to try to boost their savings right now?

Shaker Zahra

Robert E. Buuck Chair of Entrepreneurship and professor of strategy and entrepreneurship, Carlson School of Management, University of Minnesota

  • If you do not do do already, begin a saving account 
  • Fiscal responsibility requires you to develop a budget 
  • A budget requires you to live within your means 
  • Instill a sense of responsibility among family members.

Dr. Zimmerman: Look at your expenses and eliminate one thing that is not a necessity.  If you cannot eliminate an expense, try to substitute the expense with something less expensive.  For example, make coffee at home rather than buying it at a coffee shop.  Try to eliminate or decrease one expense each week.  Over time, your savings will add up and you might find that things you thought were necessities were extras that you do not really need.

What are some better alternatives to payday loans?

Dorothy Kelly

Personal Finance Lecturer at University of Virginia McIntire School of Commerce

Payday loans are by far the most costly method to fill a funding gap.  Interest rates on payday loans, measured by Annual Percentage Rate (APR), can exceed 100%.  By comparison, credit cards may charge up to 36%, and personal loans may charge between 8 and 24% in today’s interest environment. 

As an alternative, I encourage people to speak with friends, families, and coworkers, HR representatives, church members, and local non-profit organizations.  Some employers offer emergency savings and loan programs.  Also, some not-for-profit organizations offer emergency loans at rates below 12%.  These programs may include some educational and/or counseling component with the aim of teaching  financial skills.  They rarely advertise, so you have to reach out to community members to find them.

There are risks to borrowing and lending — especially with friends and family.  If you borrow from or lend money to a friend or family member, draw up and sign a loan agreement detailing the terms including the interest rate (APR), the payment schedule, and amortization table).  Spelling out and following the terms of the agreement will allow you to avoid misunderstandings, and preserve the relationship as well as your finances.  

Dr. Hu: I would recommend long-term loans from banks or financial institutions that replace your short-term borrowing needs. If you don’t have a good credit score or an existing relationship with banks, you can try marketplace lending platforms, such as Prosper or LendingClub, to do the debt consolidation.  The average annual cost for marketplace lending platforms ranges from 10.3% to 36%, depending on your credit score.

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