2.6% of American Families Took Out a Payday Loan Last Year, Up From 2.1% in 2022
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The sign in the storefront window usually promises the same thing: cash today, no credit check. For a growing slice of American families, that pitch is landing. The Federal Reserve’s Survey of Consumer Finances shows that 2.6% of families reported taking out a payday loan in the past year in 2025, slightly higher than the 2.1% who said so in 2022. It’s still a small share of households, but it’s heading the wrong way. For the families inside that number, a two-week loan can turn into months of fees.
What a Payday Loan Is, in Plain English
A payday loan is a small cash advance meant to be paid back in one lump sum, usually from your next paycheck. The Fed describes these loans as unsecured, typically small, short-term loans with interest rates far exceeding those for conventional forms of credit. “Unsecured” means there’s no collateral. The lender typically requires either a post-dated check or permission to withdraw the payment electronically from your bank account, according to the Consumer Financial Protection Bureau.
The CFPB says these loans are generally for $500 or less and typically come due two to four weeks after you borrow. That short window is where people get stuck. If rent and groceries already take up the next paycheck, there’s nothing left to repay the loan.
How Payday Costs Compare With a Credit Card
Payday lenders usually charge a flat fee for each chunk borrowed, and the CFPB says $15 per $100 is common. On a two-week loan, that fee works out to an annual percentage rate of almost 400%. That’s the number that matters when you compare it with other ways to borrow.
Credit cards are hardly cheap. The average card APR at commercial banks sits at 21.19%, and plenty of families already struggle to carry balances at that rate. A typical payday loan costs many times more.
The real damage starts when the loan can’t be repaid on time. The borrower pays just the fee. If state law allows a rollover, the CFPB explains, the due date gets pushed back, and the full balance is still owed. On a $300 loan, that adds up to $90 in fees for just four weeks of borrowing.
State Rules Can Change the Whole Deal
Where you live shapes what a payday loan looks like. The CFPB notes these loans may be offered in storefronts or online depending on state law, with fees ranging from $10 to $30 per $100 borrowed. Many states cap loan size, and a common limit is $500. Some states permit rollovers and others don’t, so two families borrowing the same amount in different states can face very different costs.
Why Retirees on Social Security Should Pay Attention
Payday lending reaches well beyond workers with paychecks. The CFPB notes a payday loan can be set to come due when income arrives from another source, such as a pension or Social Security. Consumer advocates have long warned that some short-term lenders target the elderly and disabled because their benefit checks arrive like clockwork. A steady monthly deposit makes a borrower look reliable to a lender, even when that check barely covers the bills.
Most families under strain never reach bankruptcy court. The same Fed survey found 1.4% of families declared bankruptcy in the past five years, largely unchanged from 2022. The rise in payday borrowing shows strain building at the edges, even as the most severe outcome held steady.
Cheaper Options Worth Checking First
- Credit union small-dollar loans. Federal credit unions can offer Payday Alternative Loans under National Credit Union Administration rules. These come with a capped application fee and a maximum interest rate of 28%, and repayment runs for at least one month instead of a couple of weeks. You generally need to be a member of a credit union that offers them.
- Payment plans. Utilities and medical providers will often spread a bill over several months, especially if you call before it goes past due. That costs far less than borrowing to cover it.
- Community assistance. Local charities, churches, and community action agencies can help with rent, utilities, or food, which frees up cash for the bill that’s causing the crunch.
Longer term, the best protection is a small cash cushion. Our coverage of emergency savings shows how little the typical household has set aside. And if card balances are what’s squeezing the budget, it’s worth learning how settling credit card debt works before turning to a storefront lender.
Make This One Phone Call Before Signing
Payday borrowing is still rare, but the Fed’s data shows more families reaching for it than three years ago, so before you sign anything at that storefront, call a local credit union. Ask whether it offers a Payday Alternative Loan or another small-dollar loan, and what it takes to become a member. That call costs nothing, and it could save you hundreds in fees.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
