MADISON, Wis. (9/7/12)--A new study by the Center for Financial Services Innovation (CSFI) tries to find the reasons that so many consumers use small-dollar credit (SDC) products for quick access to cash.
In "A Complex Portrait: An Examination of Small-Dollar Credit Consumers," CSFI looks at who SDC consumers are, how they decide to use an SDC product, how they fare once they use product, and what they think about the product they use.
Credit unions that offer short-term loans as an alternative to payday lenders' high-interest loans can keep in mind that that the top three loan attributes that mattered most to SDC consumers surveyed were: having quick access to money, the ability to qualify for the loans, and clear terms that aren't obscured by contract jargon.
In addition to providing these three needs, credit unions also can provide financial counseling and savings plans that are related to loans that attract SDC consumers.
Some other key findings from the research:
- An estimated 15 million consumers used at least one SDC product in the past year.
- The average household income for an SDC consumer was $32,000, compared with $40,000 for non-SDC consumers. However, 20% of SDC consumers had an average household income between $50,000 and $75,000.
- Twenty-seven percent of SDC consumers had a credit card, compared with 61% of non-SDC consumers.
- The top three reasons for funds shortage included: living expenses consistently more than income, payment due before paycheck, and unexpected events such as emergency expenses or income decreases.
- While 66% of SDC consumers had no savings, more than half of those that had savings chose not to use it all and relied on credit instead.
To download the full paper, use the link.