Who Takes Short-term Loans And Why

Sometimes people who need immediate financial help may feel uncomfortable about taking a short-term loan. This is caused by the fact that they simply lack information about loans.

Who Takes Loans?

According to a study conducted by Pew Charitable Trusts, the majority of short-term loan borrowers are white females between 25 and 44 years old. However, people who rent their homes, earn below $40,000 per year, are separated or divorced tend to get short-term loans more often.
The same study discovered that 12 million Americans use short-term loans annually and 5.5 percent of people in the US admitted that they turned to this form of financial help in the past five years.

Why Take Short-term Loans?

The borrowers take in average $375 for 18 days. People use short-term loans to deal with all kinds of emergencies: to pay medical bills, repair their cars or deal with unexpected problems with home appliances. Besides, short-term loans turn out to be useful when it comes to paying credit card bills, mortgage, rent and buying first necessity products like food. However, it is necessary to keep in mind, that short-term loans are not dedicated to be spent on shopping or an expensive holiday. They should be used as a short-term solution for financial problems but not as a way to get free money.

What If There Were No Such Loans?

The researchers also asked Americans what they would do if short-term loans were not available. The great majority – 81 percent – said that they would cut their expenses on clothing and food. Other options also included borrowing from family or friends, selling property and delayed bill payments.
Tom Lehman, an advocate of short-term lending, said: “Short-term lending services extend small amounts of uncollateralized credit to high-risk borrowers and provide loans to poor households when other financial institutions will not. Throughout the past decade, this “democratization of credit” has made small loans available to mass sectors of the population, and particularly the poor, that would not have had access to credit of any kind in the past.”

To Take Or Not To Take?

Short-term Loans may become a useful means of dealing with unpleasant or critical financial situations when used and repaid properly. In order to make such loans work for you, you need to review all the terms and fees of the short-term loans. It is necessary to study the APR and get a clear understanding of what amount you will have to repay and when.