Despite the widespread use of payday loans in America, Generation-X and Millennials are more likely to take out online payday loans, with 52% of borrowers in this age group (25-44) using the service. This equates to over 6.2 million people annually, out of the total 12 million payday loan users in the US.
The high number of young individuals turning to this form of financing has prompted us to consider the reasons behind this trend. Below, we have identified the main drivers of this phenomenon and provided tips for protecting oneself from predatory lending. This information is not only useful for young generations but for all individuals.
Young Audience and Payday Loan Dependence
It is undeniable that generations tend to differ in their patterns of behavior and reactions. However, a commonality among young people is their comfort with the internet and technology. This plays a significant role in their use of credit and online payday loans. The following are four reasons why this is the case.
Convenience of online access. Young adults, who may not have access to traditional loan stores, can find payday loans Filld.loan more accessible and convenient due to their online availability.
Easy application. The process of applying for this type of financing is simple and typically takes a few minutes to complete. This makes payday loans an attractive option for those in need of quick cash.
Lack of financial knowledge. A younger audience may not fully understand the risks and costs associated with payday loans, and may be more susceptible to predatory lending practices.
No or little credit history. The age group of 25-44 may have less established credit history or income, making it more difficult for them to qualify for traditional forms of financing.
While there are multiple other reasons why younger gen are more likely to take out short-term forms of borrowing, one driving factor that significantly contributes to this trend is the influence of social media advertising.
The Impact of Social Media Ads
It can be challenging to assess the impact of social media on our everyday lives. However, some advertisements from lenders on these platforms can be deceiving and can lead people to use their services even if it is not beneficial for them.
Predatory lending practices, like those that offer instant cash with no credit checks or fees, are becoming more common on social media. Despite rules against such ads on platforms like TikTok and Facebook, some lenders still manage to bypass them. This makes young people particularly vulnerable to falling into heavy debt due to payday loan ads on social media.
Payday Loans from Social Media Ads: What to Know
Here is what you need to consider before obtaining a payday loan from an advertisement on social media:
1. Hidden Interest Rate
Some lenders that advertise on TikTok attempt to avoid regulations and state laws on interest rates by using different terms for their fees. They might call it a “tip” or a “fee” instead of interest, in hopes that you won’t realize how much you will actually have to pay. Keep in mind that reputable lenders will always be transparent about their APR for their products.
2. Payday Loans are Expensive
Payday loans are costly due to their short-term and high-risk nature. For example, borrowing $300 for two weeks results in a lending fee of $15, which equates to a 130% APR if the interest rate is rolled over 26 times. This does not include any additional costs.
3. Shop Around for Other Options
Young people or those without access to other forms of credit are often targeted by less-than-reputable lenders who advertise the fact that no credit check or paperwork is required for a loan. However, this convenience comes at a high cost. It’s important to consider other options, such as small dollar loans offered by credit unions, before applying for a payday loan.
4. Not All Commercial Ads are Truthful
Be cautious of TikTok ads for payday loans that claim to offer quick money. Keep in mind that if something appears too good to be true, it likely is. Many payday loan providers have faced accusations of unethical behavior, and some may attempt to obtain your bank account information. Do some research before falling for these types of ads on social media.
5. Make sure to Have a Repayment Plan
Last but not least, before taking out a loan, make sure you are able to repay the principal within the original time frame, as failure to do so can lead to an endless debt cycle and damage to your credit score.
The post Why are Younger Generations Using Payday Loans Online More? first appeared on BusinessMole.
