A Complex Portrait- An Examination of Small-Dollar Credit Consumers

Every year, millions of American consumers use small-dollar credit (SDC) products for quick access to cash. Yet, these products—payday loans, pawn loans, direct deposit advance loans, auto title loans, and non-bank installment loans—often come with high fees or interest rates and can lead consumers into a cycle of repeat usage and mounting debt. This study seeks to elucidate the reasons why so many consumers rely upon these potentially dangerous products and to glean what can be learned from their experiences to promote the development of high-quality credit solutions.

This study covers the following angles of the SDC Consumer: who they are, how they decide to use a SDC product, how they fare once they have used a product, and what they think about the products they use. 

Some key findings from the research:

• An estimated 15 million consumers used at least one SDC product in the past year
• The average household income for an SDC consumer was $32,000 compared to $40,000 for non-SDC consumers, although 20% of SDC consumers had an average household income between $50,000 and $75,000
• Only 27% of SDC consumers had a credit card, compared to 61% of non-SDC consumers
• The top 3 reasons for funds shortage included:
  • living expenses consistently more than income
  • bill or payment due before paycheck, and
  • unexpected events such as emergency expenses or income drops 
• While 66% of SDC consumers had no savings, more than half of those that did have savings chose not to use it all and relied on credit instead
• The top 3 loan attributes that mattered most to SDC consumers were:
  • quick access to money
  • ability to qualify, and
  • clear terms
• Although experiences varied significantly, many SDC consumers struggled with repeat usage, particularly users of payday and pawn loans who were often in debt for a considerable part of the year due to high levels of repeat borrowing.
  • When looking across the entire year, payday borrowers took out an average of 11 payday loans or extensions, remaining in debt for approximately 150 days out of the year; pawn loan borrowers took out an average of 7 pawn loans, remaining in debt for approximately 200 days out of the year
• While a slight majority of SDC customers reported a satisfactory experience, a significant number reported quite negative experiences.
  • Within the products considered, payday loans and auto title loans received the lowest ratings and deposit advance received the highest.
  • 30% of SDC consumers reported the loan costing more than expected

Download the full paper "A Complex Portrait: An Examination of Small-Dollar Credit Consumers below. 

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• Research Papers
• Credit
• Pawn
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• Secured Credit
• Small Dollar Credit