Segmentation Of People That Consume Payday Loans

Payday loans - why and for whom?

Payday loans have seen incredible growth in popularity in recent years. Here, we look at the typical characteristics for consumers of payday loans.

Why?

Payday loans are for small amounts and aren't really designed for big one-off purchases. Instead, they're mostly used for short term finance, often to help people with their regular bills or rent payments. What this means is that customers will usually have below average income, at around £1000 a month. A fact that is related to this, is that consumers of payday loans tend to be in the lower age range of the financial services market: most payday loan customers are aged from 25 to 35. The lower end of this may reflect the age when they have moved away from parents into their own home (with their own bills!) or maybe have begun having children and so have more monthly commitments. The fact few customers are over 35 may be because of the higher wages paid to people who are older than this, and also possibly better monthly financial planning, because payday loans exist primarily as 'emergency' finance, which is to cover payment demands that weren't expected. Although having a family may be a factor for those requiring a payday loan, most of those applying for one are in fact single. However, single parenting has become increasingly common in society, and it might be expected that those bringing up children without a partner are more likely to suffer financial emergencies if they are surviving on one wage, and do not have the security of another person's income.

Who?

Because the loans are for any purpose, they have been just as popular with men as with women - even though men and women buy different things for themselves, they both have the same bills to pay! What does make a difference in a person's likelihood of needing a payday loan is whether or not they are a tenant. There are a number of possible reasons for this. The main one is that people who rent their home are more likely to have a lower income than people who have been able to buy their own home. People who have bought their own home might also have already planned their monthly spending in advance, because they had to when they applied for their mortgage. This means they are more likely to be prepared for each month's bills. Another factor is that those using Payday loans are likely to be people with credit problems in the past, which would also make it difficult to get a mortgage. People who have had credit problems in the past might also choose payday loans because the 'ordinary' types of loans offered to them are often on a very poor deal, and also payday loans are usually accepted without scrutinizing your financial history: as long as you can pay it back come payday, that's generally enough.

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