|[December 04, 2013]
Why Consumers are Turning to Small-Dollar Credit
CHICAGO --(Business Wire)--
Today, the Center
for Financial Services Innovation (CFSI) released a
new study identifying the financial needs leading consumers to use
potentially high-cost small-dollar credit (SDC) products-like payday
loans, deposit advance loans, auto title loans, and more. With an
estimated 15 million people accessing SDC products to address their need
for quick access to cash, the report underscores the importance of
developing high-quality credit products designed to help meet this
demand without the risks posed by many of the credit products available
study, supported by funding from the Ford Foundation, identified
four primary consumer need cases in the SDC market, each representing a
distinct borrower profile and different uses of small-dollar credit. The
need cases are:
Unexpected Expense borowers tend to access credit infrequently
for relatively larger expenses related to an unexpected or emergency
event, such as a car repair.
Misaligned Cash Flow borrowers take out smaller amounts
somewhat frequently to pay bills and meet regular household expenses
when their income and expenses are mistimed.
Exceeding Income borrowers' expenses regularly exceed their
income and these consumers tend to be among the most frequent users of
credit, accessing small amounts for everyday expenses.
Planned Purchase borrowers are a smaller but important niche
group of users in the SDC market who make a relatively large, planned
purchase, commonly related to a personal asset.
These need cases were determined through analysis of a panel survey of
more than 1,100 SDC borrowers and 31 in-depth interviews with SDC
customers. The report breaks down each need case by approximate market
size, mean household income, average loan size, specific loan products
used, and average number of loans per borrower.
The need cases presented here provide a new framework for exploring the
challenge of when and how to responsibly extend small-dollar credit. The
findings also suggest potential opportunities for the development of
high-quality products, highlighting the importance of product
differentiation and underwriting.
"This report provides a clearer picture of the needs, decisions, and
experiences of small-dollar credit consumers," said Rachel Schneider,
Senior Vice President, Insights & Analytics, CFSI. "There is no
one-size-fits-all answer to the financial challenges facing millions of
Americans, but we believe this report can inform the development of
safe, affordable, and innovative solutions."
For more information and to download our report, visit here.
The Center for Financial Services Innovation (CFSI) is the nation's
leading authority on financial services for underserved consumers.
Through insights gained by producing original research; promoting
cross-sector collaboration; advising organizations and companies by
offering specialized consulting services; shaping public policy; and
investing in nonprofit organizations and start-ups, CFSI delivers a
deeply interconnected suite of services benefiting underserved
consumers. Since 2004, CFSI has worked with leaders and innovators in
the business, government and nonprofit sectors to transform the
financial services landscape. For more on CFSI, go to http://www.cfsinnovation.com
and join the conversation on Twitter (News - Alert) at @CFSInnovation.
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