Some Borrowers Use the Same Options to Repay Loans That They Could Have Used Instead of Borrowing. This shouldn’t be so. Take a quick look at these quotes before we get on:
“Borrowing is not much better than begging; just as lending with interest is not much better than stealing.”
“You can make great money in a utility type of business by borrowing cheaply and lending sensibly but that’s not what’s being done.”
“I am not that good a manager for me to be comfortable borrowing someone else’s money.”
Penny wise and pound foolish with loans
Access to credit is an important tool for people dealing with a cash shortfall, but it would be a mistake to think that people are choosing solely among credit options. Pew’s first Payday Lending in America report identified a variety of informal or non credit options that a majority of borrowers said they would employ if payday loans were unavailable: cutting back on expenses, borrowing from family or friends, delaying bills, and pawning or selling items. As explained below, many ultimately turn to the same options they could have used instead of payday loans as a way to pay off the loans.
Pew’s survey asked borrowers which methods they have used to pay back a payday loan. Seven in 10 payday borrowers have repaid loans from regular income or savings at least once. Although most borrowers have had or saved enough money to repay a loan at some point, 41 percent have used some other method—asking family or friends for help, waiting for a tax refund, or using another credit product—at least once. Three in 10 borrowers have never been able to repay with income or savings, relying exclusively on one or more alternative strategies.
Are you Penny wise and pound foolish with loans?
Some borrowers repaid loans using strategies that they had available to cover their expenses before taking a payday loan in the first place. For example, 19 percent of borrowers received help from family or friends to pay back the loans, and almost all of them report that borrowing from family or friends is an option that would be available to them instead. Similarly, some focus group participants said they chose a payday loan instead of other options but then turned to those same alternatives later to help them resolve their payday loan debt.