The impact of the great recession and the sluggish recovery has been the rising use of nonbank credit products, due to recession the use of payday loans or other this kind of agency has been increased like payday loan, rent to own agreements, refund anticipation loan, pawanshop loan. A disturbing underlying trend is that many of the borrowers using such short duration, high interest fees loans are first-time users and have characteristics normally associated with economic advantage not distress. Moreover, many nonbank consumers are using morethan one such product.
If we consider June 2010 through May 2011, the two year of the recovery, 7.2 million the USA households used at least one of the short term loans industry products, such as payday loan or pawanshop loan. That’s 6% of all families nationwide. These facilities have found themselves unable to meet their basic requirement and some emergency needs through other available resources: their saving or own income, government benefits, networks, private support, or banks loans. These are the reason behind it that borrowers have turned to the alternative financial services sector for credit, often at high interest rates fees.
There are some impacts of short-term loan use, based on our analysis of data from the June 2011 the USA survey of the under banked and Unbanked:
- Six year of the prior year users, or 1.2 million facilities, turned to short term loans credit sources for the first time, reflecting the severity of their the depletion of their assets, recent earning losses, and (for those in long term joblessness) the expiration of unemployment insurance.
- There are lot of consumers is using nonbank loan products have demographic characteristics typically associated with financially stable persons: and many person have annual income approximately $50,000 (21%)and are age 55 or more than older(17%), and white disable person (55%).
- Approximately one in five of the prior-year users, or 1.3 million households, used 2 or more of the four payday cash advance product type within the 12 month survey time.
Mention above point is the proof of this uncomfortable reality, a person that continued slow increment in his salary, coupled with the stringency of retail lending one of the mainstream banks, has left many US consumers with little choice but to rely on exorbitant interest rate alternative lenders. And they are doing so at a time when they can little afford the high interest fee and charges attached to payday loan products.