Payday Loan Use by Millennials
Originally called salary loans, payday loans and other short-term loans have been around for generations. They were offered to borrowers in need of a week’s worth of pay at an earlier date. These short-term loans were first regulated by the Uniform Small Loan Law of 1916 and are frequently used by millennials a century later.
Payday Loans Are Easier to Secure Than Traditional Bank Financing
Since the economic crisis of 2008, lending requirements have tightened up significantly. A decade ago, individuals might have been able to secure personal loans with minimal collateral as long as they could prove income. Today, however, banks are reluctant to lend any money without sterling credit scores, a proven high income and collateral. Even then, the interest rates may be less than desirable to millennials. Millennial borrowers in need of financing that can’t qualify for bank loans might turn to payday and short-term loans, which tend to be more forgiving of employment gaps or poor credit.
Millennials Are Wary of Modern Financial Institutions
Baby boomers and even those belonging to Generation X typically respected and trusted financial institutions. After hundreds of banks collapsed between 2008 and 2011, however, that trust disintegrated significantly. Millennials, or those born between 1980 and 2000, were impacted greatly by these collapses. As a result, as many as 28 percent of millennials have opted for short-term lending over the past five years. In addition to payday lending from providers like the Personal Money Store, these short-term options can include check-cashing services as well as a reliance on pawn shops for instant income.
Short-term Loans Offer Immediate Gratification
Fairly or not, the millennial generation has been described as one that appreciates instant gratification. Millennials are more likely than any previous generations to switch jobs and career paths multiple times in a lifetime, and a reliance on social media means attention spans may be getting shorter than ever. It makes sense, then, that millennials also favor quick options for securing money. Payday and short-term loans appeal to this generation because they can provide immediate answers even if they tend to charge higher interest rates in exchange for that convenience.
Millennials might require a short-term loan to:
- Handle relocation: Millennials are more likely to move for careers or personal relationships, and a payday loan can help cover these relocation expenses.
- Handle temporary unemployment: While pursuing passions and interests is a priority for many millennials, the result may be a need for temporary financial assistance when between jobs.
- Avoid relying on parents: A payday loan can be a millennial’s way of choosing not to rely on their parents for financial assistance.
Many Millennials Carry Larger Student Loans Than Ever Before
Reuters reported one study highlighting the fact that almost 50 percent of millennials would be unable to come up with $2,000 for an emergency. While there is certainly a range of reasons for this, one that can’t be ignored is the burden of student loans. Today, 70 percent of college graduates who manage to walk away with a diploma also walk away with around $29,000 in debt. Repaying such a substantial amount of money, particularly in an economy where job security and pay are far from what they used to be, can encourage the use of payday loans when bills simply can’t be paid.
Short-term Loans Have Little, If Any, Impact on Credit Reports
While older generations might view millennials as irresponsible based on their financial instability, many young adults are actually turning to payday loans in order to protect their credit ratings. If a payday loan is paid back in a timely fashion, it won’t necessarily be reported to the main credit agencies, protecting the borrower’s credit in a way that a traditional loan or credit card debt might not.
Payday loans certainly have pros as well as cons, but many millennials seem to appreciate their instant nature. Potential borrowers can learn more about securing short-term lending for all ages by visiting the Personal Money Store blog.