Payday loans have become an indispensable part of our daily life. Do they help or have a worse impact on our financial situation? It is difficult to answer. For some, they are a rescue belt, for others a heavy burden. But surely one thing is true. According to The Guardian:
“51% of young women have to borrow to make cash last until payday”
More than half of young women have to borrow to make their cash last to the end of the month, highlighting the impact of stagnating wages, insecure work and rising prices on millennials.
A survey of 4,000 people aged 18-30 shows that 51% of young women and 45% of young men regularly use credit to stretch their finances until payday. The report also found that a quarter of young people in the UK are constantly in debt.51% of young women and 45% of young men regularly use credit Click To Tweet
When asked how young people made their cash last to the end of the month, one in five said they used their overdraft and a similar number borrowed from family. The next most popular form of borrowing by people in the age group was using a credit card.
One in 10 said they had used a payday loan company, although, for parents aged under 30, this number increased to one in four.
Young women are more likely to be stuck on low pay and on zero-hours contracts, which mean they don’t know how many hours they will work each month and whether they will earn enough to pay their bills.
It can be particularly hard for young mums; in many cases, low pay means an hour’s childcare can cost more than an hour’s wages. As a result, many are failing to make ends meet and are falling into debt,” she added.
Meanwhile, there is a hope that things get better. This bright beam is linked to the new rules that have been issued for the payday loans. Despite controversial comments and reviews, www.freep.com published that Payday loans rule could lead to cheaper alternatives.
The Consumer Financial Protection Bureau’s final payday loan rule — which was announced Oct. 5 and could go into place in 2019 — could open the door to lower-cost installment loans from banks and credit unions, according to Nick Bourke, director of the Pew Charitable Trust’s consumer finance project.
Before that happens, Bourke said banks would need to receive clear guidelines from regulators. But the loans could be six to eight times less costly than payday loans.
What could change: Lenders eventually would be required to research upfront whether borrowers could afford to repay all or most of their short-term loans at once — including payday loans and auto title loans — and longer-term loans with “balloon” payments.
Under the rule, a lender would have to verify income and major financial obligations and estimate basic living expenses for a one-month period — the month when the highest payment is due.
Banks and credit unions have some advantages because they already have customer relationships and can automate loan origination. Pew has advocated for streamlined underwriting guidelines on bank-issued installment loans that allow monthly installment payments of up to 5% of monthly income.
What won’t change:
People who are cash-strapped still will be looking for ways to cover their bills.
Starks said he knows of one woman who lost her job and didn’t have a regular paycheck. But somehow, she got a payday loan to cover some of her bills. Many lenders do treat Social Security and disability payments as sources of income. The Detroit woman had hoped she’d have another job by the time the payday loan was due but that didn’t happen. “She never got caught up,” Starks said. Payday loans offer a quick fix but consumer advocates warn that the loans can lead to long-term debt traps.
We have the hope that things will change for the better one day.