LOMBARD, Ill.—A good percentage of consumers prefer to receive small-dollar loans from their PFI, as opposed to a payday-type lender, indicates a new study that also shows interest in small-dollar loans is much higher among younger people.
A recent Raddon Research Insights survey explored the use of payday loans, vehicle title loans and deposit advance loans.
“These small dollar loans are typically less than $3,000. Gen X is the segment most likely to use any of these types of loans with one out of six (16%) indicating use,” said Senior Research Analyst Randy Sagar in a recent Raddon web post. “Vehicle title loans are the most popular of the three small dollar loan types tested, followed by payday loans and deposit advance.”
Why the high Gen X use?
“It may be that this generation was most impacted by the financial crisis and is still struggling to get back on its collective feet,” Sagar said.
When respondents were asked about small dollar loan availability from their PFI, overall, one-fifth (21%) indicated they would find this offering extremely to very valuable, Sagar said.
“However, among the younger generations, the value of this product at their primary financial institution increases, one quarter of Gen X and Gen Y view their PFI offering small dollar loans as extremely or very valuable,” Sagar explained. “Most importantly, our research shows that current users of any alternative loan find value in small dollar loans from their primary financial institution, with more than one-third (36%) citing this offering as extremely or very valuable. This is especially true for those with a payday loan (49%) or deposit advance (49%).”
Sagar said the need for these loans is clear; those who are using these alternative loans are credit-challenged.
“Self-reported credit scores are significantly lower than other households,” concluded Sagar, pointing to Raddon data. “Financial institutions have the opportunity to assist and provide such consumers with a better loan alternative, which may assist in generating significantly higher loan yields than on the prime portfolio.