Small-Dollar Loans
Why Consumers Turn to Small-Dollar Credit To see the report, visit our website http://www.cfsinnovation.com/content/know-your-borrower-four-need-cases-small-dollar-credit-consumers
Small-Dollar Loans 15 Million Americans Use Them With limited access to traditional lines of credit, about 1 in every 11 low and moderate-income Americans turns to small-dollar loans for quick access to cash. These loans can be expensive and difficult for consumers to repay. Some small-dollar loans require full repayment within 2 weeks and charge fees or interest as high as 400% APR.
NOV
$$$
PAYDAY LOANS
PAWN LOANS
DIRECT DEPOSIT ADVANCE
INSTALLMENT LOANS
AUTO TITLE LOANS
Types of Small-Dollar Credit Consumers Consumer research identifies four major reasons why borrowers use small-dollar loans.*
32%
30% EXCEEDING INCOME BORROWERS
MISALIGNED CASH FLOW BORROWERS
spend more than they make and are among the heaviest users of credit, accessing smaller loan amounts for everyday expenses
frequently access smaller credit amounts for the periodic payment of bills due to a mistiming of income and expenses
9%
32%
PLANNED PURCHASE
UNEXPECTED EXPENSE BORROWERS
are a unique niche of users in the SDC market making a relatively large, planned purchase often related to a personal asset, such as a car, furniture or household appliance
access small-dollar credit somewhat infrequently for relatively larger expenses related to unexpected or emergency events
*Includes multiple reporting of credit needs
Know Your Borrower Four Types of Small-Dollar Credit Consumers Understanding the needs of borrowers is a first step in developing higher-quality small-dollar credit products.
UNEXPECTED EXPENSE Borrowers
BORROWER PROFILE WHO Ivy, 70 OCCUPATION Retired MONTHLY INCOME $2,380 MONTHLY EXPENSES $1,700 -$2,000 CREDIT USE Infrequent Emergencies As a retiree, Ivy has a fixed income and doesn’t rely on small-dollar loans regularly, only for large expenses related to an unexpected or emergency event. With a limited budget, Ivy can’t afford health insurance and takes the bus to save money. Her elderly mother depends on her financially, which limits her ability to put money aside in a savings fund. Without credit cards, her only option was to take out a small-dollar loan during the holidays when the water main inside her one bedroom condo broke, damaging the bathroom.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
NOV
INSTALLMENT
PAYDAY
AUTO TITLE
29%
26%
25%
$33k
PRIMARY LOAN USES
# LOANS USED IN A YEAR
LOAN AMOUNTS
% W/ SAVINGS PRIOR TO CREDIT USE
+32+12+11
��� ��� $
CAR REPAIR
1 to 2 LOANS
MEDICAL BILLS
3 to 5 LOANS
$500 to $1,000
FAMILY/FRIEND
6 + LOANS
> $1,000
32%
47%
12%
30%
11%
23%
< $500
57%
50%
18% 25%
MISALIGNED CASH FLOW Borrowers BORROWER PROFILE WHO Jane, 56 OCCUPATION Administrative Assistant & Hotel Staff MONTHLY INCOME $2,000 - $2,400 MONTHLY EXPENSES $1,600 - $2,000 CREDIT USE Occasional to Frequent Despite working two jobs, Jane sometimes finds herself short on money to pay the bills. Her tight budget relies on income from her second job, which varies from week to week. Jane has also struggled to manage her expenses in the past which led her to file for bankruptcy. Without access to credit cards, Jane uses payday loans when she’s behind on her phone bill or to make a rent payment. She says having the ability to pay bills in installments and to time the payments around her payday helps her manage her uncertain finances and avoid late fees.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
PAYDAY
56% PRIMARY LOAN USES
52+24+23 UTILITY BILLS
PAWN
AUTO TITLE
28%
26%
$31k
# LOANS USED IN A YEAR
LOAN AMOUNTS
% W/ SAVINGS PRIOR TO CREDIT USE
2335+ 35+ ��� ��� $
1 to 2 LOANS
23%
67%
RENT
24%
3 to 5 LOANS
35%
$500 to $1,000
GENERAL LIVING
6 + LOANS
> $1,000
52% 23%
35%
< $500
26%
19% 14%
EXCEEDING INCOME Borrowers BORROWER PROFILE WHO Nicole, 27 OCCUPATION Debt Collector at Bank MONTHLY INCOME $2,100 MONTHLY EXPENSES $2,200 CREDIT USE Frequent Nicole’s expenses regularly exceed her income. She and borrowers in similar financial situations are most likely to repeatedly use very short-term credit and rollover the loans over longer periods of time. To cover the costs of her grandmother ’s medicine, Nicole took out a payday loan. However she is unable to retire her debt so she renews the loan every two weeks. Nicole also used an advanced deposit loan to cover a car insurance payment, which she renews every two weeks.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
PAWN
41% PRIMARY LOAN USES
47+27+14 GENERAL LIVING
PAYDAY
39%
INSTALLMENT
14%
$27k
LOAN AMOUNTS
% WITH SAVINGS PRIOR TO CREDIT USE
3326+ 41+ ��� ��� # LOANS USED IN A YEAR
$
1 to 2 LOANS
33%
77%
UTILITY BILLS
27%
3 to 5 LOANS
26%
$500 to $1,000
RENT
6 + LOANS
> $1,000
47% 14%
41%
< $500
23%
13% 10%
PLANNED PURCHASE Borrowers
BORROWER PROFILE WHO Daniela, 35 OCCUPATION Janitor MONTHLY INCOME $2,400 MONTHLY EXPENSES $2,000 CREDIT USE Infrequent / Planned Daniela’s husband works in construction, and together they are able to stay on top of their expenses and not rely on borrowing regularly. High fees prompted Daniela to cancel her credit card, but it also lowered her credit score. So for major purchases, she uses non-bank installment loans. She plans ahead and makes prudent decisions about borrowing. Daniela took out a $1,400 loan to pay for her son's summer camp. She also borrowed to cover travel expenses to visit family abroad, and to help build a small house for her mother in Mexico.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
INSTALLMENT
51%
PRIMARY LOAN USES
32+17+13 CAR PURCHASE
32%
FURNITURE/ APPLIANCE
AUTO TITLE
36%
$46k
# LOANS USED IN A YEAR
LOAN AMOUNTS
5124+ 15+ ��� ��� $
1 to 2 LOANS
< $500
51%
38%
3 to 5 LOANS
$500 to $1,000
17%
24%
53%
BUSINESS
6 + LOANS
> $1,000
13%
% WITH SAVINGS PRIOR TO CREDIT USE
15%
71%
9%
Small-dollar credit consumers deserve high-quality solutions that address their need for credit and help them improve their financial health. The challenge of how to responsibly extend small-dollar credit can be met, and it starts with knowing the needs of the borrower.
To see the report, visit our website http://www.cfsinnovation.com/content/know-your-borrower-four-need-cases-small-dollar-credit-consumers
Sponsored By:
Small-Dollar Loans 15 Million Americans Use Them With limited access to traditional lines of credit, about 1 in every 11 low and moderate-income Americans turns to small-dollar loans for quick access to cash. These loans can be expensive and difficult for consumers to repay. Some small-dollar loans require full repayment within 2 weeks and charge fees or interest as high as 400% APR.
NOV
$$$
PAYDAY LOANS
PAWN LOANS
DIRECT DEPOSIT ADVANCE
INSTALLMENT LOANS
AUTO TITLE LOANS
Types of Small-Dollar Credit Consumers Consumer research identifies four major reasons why borrowers use small-dollar loans.*
32%
30% EXCEEDING INCOME BORROWERS
MISALIGNED CASH FLOW BORROWERS
spend more than they make and are among the heaviest users of credit, accessing smaller loan amounts for everyday expenses
frequently access smaller credit amounts for the periodic payment of bills due to a mistiming of income and expenses
9%
32%
PLANNED PURCHASE
UNEXPECTED EXPENSE BORROWERS
are a unique niche of users in the SDC market making a relatively large, planned purchase often related to a personal asset, such as a car, furniture or household appliance
access small-dollar credit somewhat infrequently for relatively larger expenses related to unexpected or emergency events
*Includes multiple reporting of credit needs
Know Your Borrower Four Types of Small-Dollar Credit Consumers Understanding the needs of borrowers is a first step in developing higher-quality small-dollar credit products.
UNEXPECTED EXPENSE Borrowers
BORROWER PROFILE WHO Ivy, 70 OCCUPATION Retired MONTHLY INCOME $2,380 MONTHLY EXPENSES $1,700 -$2,000 CREDIT USE Infrequent Emergencies As a retiree, Ivy has a fixed income and doesn’t rely on small-dollar loans regularly, only for large expenses related to an unexpected or emergency event. With a limited budget, Ivy can’t afford health insurance and takes the bus to save money. Her elderly mother depends on her financially, which limits her ability to put money aside in a savings fund. Without credit cards, her only option was to take out a small-dollar loan during the holidays when the water main inside her one bedroom condo broke, damaging the bathroom.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
NOV
INSTALLMENT
PAYDAY
AUTO TITLE
29%
26%
25%
$33k
PRIMARY LOAN USES
# LOANS USED IN A YEAR
LOAN AMOUNTS
% W/ SAVINGS PRIOR TO CREDIT USE
+32+12+11
��� ��� $
CAR REPAIR
1 to 2 LOANS
MEDICAL BILLS
3 to 5 LOANS
$500 to $1,000
FAMILY/FRIEND
6 + LOANS
> $1,000
32%
47%
12%
30%
11%
23%
< $500
57%
50%
18% 25%
MISALIGNED CASH FLOW Borrowers BORROWER PROFILE WHO Jane, 56 OCCUPATION Administrative Assistant & Hotel Staff MONTHLY INCOME $2,000 - $2,400 MONTHLY EXPENSES $1,600 - $2,000 CREDIT USE Occasional to Frequent Despite working two jobs, Jane sometimes finds herself short on money to pay the bills. Her tight budget relies on income from her second job, which varies from week to week. Jane has also struggled to manage her expenses in the past which led her to file for bankruptcy. Without access to credit cards, Jane uses payday loans when she’s behind on her phone bill or to make a rent payment. She says having the ability to pay bills in installments and to time the payments around her payday helps her manage her uncertain finances and avoid late fees.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
PAYDAY
56% PRIMARY LOAN USES
52+24+23 UTILITY BILLS
PAWN
AUTO TITLE
28%
26%
$31k
# LOANS USED IN A YEAR
LOAN AMOUNTS
% W/ SAVINGS PRIOR TO CREDIT USE
2335+ 35+ ��� ��� $
1 to 2 LOANS
23%
67%
RENT
24%
3 to 5 LOANS
35%
$500 to $1,000
GENERAL LIVING
6 + LOANS
> $1,000
52% 23%
35%
< $500
26%
19% 14%
EXCEEDING INCOME Borrowers BORROWER PROFILE WHO Nicole, 27 OCCUPATION Debt Collector at Bank MONTHLY INCOME $2,100 MONTHLY EXPENSES $2,200 CREDIT USE Frequent Nicole’s expenses regularly exceed her income. She and borrowers in similar financial situations are most likely to repeatedly use very short-term credit and rollover the loans over longer periods of time. To cover the costs of her grandmother ’s medicine, Nicole took out a payday loan. However she is unable to retire her debt so she renews the loan every two weeks. Nicole also used an advanced deposit loan to cover a car insurance payment, which she renews every two weeks.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
PAWN
41% PRIMARY LOAN USES
47+27+14 GENERAL LIVING
PAYDAY
39%
INSTALLMENT
14%
$27k
LOAN AMOUNTS
% WITH SAVINGS PRIOR TO CREDIT USE
3326+ 41+ ��� ��� # LOANS USED IN A YEAR
$
1 to 2 LOANS
33%
77%
UTILITY BILLS
27%
3 to 5 LOANS
26%
$500 to $1,000
RENT
6 + LOANS
> $1,000
47% 14%
41%
< $500
23%
13% 10%
PLANNED PURCHASE Borrowers
BORROWER PROFILE WHO Daniela, 35 OCCUPATION Janitor MONTHLY INCOME $2,400 MONTHLY EXPENSES $2,000 CREDIT USE Infrequent / Planned Daniela’s husband works in construction, and together they are able to stay on top of their expenses and not rely on borrowing regularly. High fees prompted Daniela to cancel her credit card, but it also lowered her credit score. So for major purchases, she uses non-bank installment loans. She plans ahead and makes prudent decisions about borrowing. Daniela took out a $1,400 loan to pay for her son's summer camp. She also borrowed to cover travel expenses to visit family abroad, and to help build a small house for her mother in Mexico.
BORROWER STATS AVG. HOUSEHOLD INCOME
SDC PRODUCTS USED
INSTALLMENT
51%
PRIMARY LOAN USES
32+17+13 CAR PURCHASE
32%
FURNITURE/ APPLIANCE
AUTO TITLE
36%
$46k
# LOANS USED IN A YEAR
LOAN AMOUNTS
5124+ 15+ ��� ��� $
1 to 2 LOANS
< $500
51%
38%
3 to 5 LOANS
$500 to $1,000
17%
24%
53%
BUSINESS
6 + LOANS
> $1,000
13%
% WITH SAVINGS PRIOR TO CREDIT USE
15%
71%
9%
Small-dollar credit consumers deserve high-quality solutions that address their need for credit and help them improve their financial health. The challenge of how to responsibly extend small-dollar credit can be met, and it starts with knowing the needs of the borrower.
To see the report, visit our website http://www.cfsinnovation.com/content/know-your-borrower-four-need-cases-small-dollar-credit-consumers
Sponsored By:
