Regular borrowing results in a rapid build-up of charges and traps the borrower in a cycle of debt. Payday loans are used as occasional short-term loans. The typical payday loan borrower is an average middle-income person who is not in a vulnerable position. The current cost of a payday loan is appropriate based on the risk associated with the loan and the cost of available alternatives. The industry is highly regulated.
Many borrowers use payday loans over relatively long periods.
In analyzing data collected by state regulators, the Institute found that 18 percent of the borrowers have three or fewer contracts. However, the average number of contracts per borrower is 12.6. Twenty-one percent have more than 20 contracts. Because the majority of borrowers become frequent users of payday loans, APR is an appropriate measure of the cost of borrowing. Moreover, the high cost of payday borrowing grows rapidly as borrowers take out debt over longer periods.