A new report from The Pew Charitable Trusts reveals that people choose payday loans to avoid outcomes such as long-term debt, borrowing from family or friends, overdraft fees and cutting back on expenses.

But the average loan requires a repayment of more than $400 in two weeks, the typical duration, when the average borrower can only afford $50. When borrowers have trouble paying off the loan, they return to the same choices they initially tried to avoid.

Other key findings of "Payday Lending in America: How Borrowers Choose and Repay Payday Loans," based on a national telephone survey and 10 focus group surveys, help explain why people turn to payday loans and how they are deeply torn about the experience.

Key findings include:

- By nearly a three-to-one margin, borrowers favor more regulation of payday loans. A majority of borrowers say the loans both take advantage of them and that they provide relief. Despite feeling conflicted about their experiences, borrowers want to change how payday loans work.

- Seventy-eight percent of borrowers rely on information from lenders when choosing to borrow money. This reliance reinforces the perception that payday loans are unlike other forms of credit because they will not create ongoing debt. Yet the stated price tag for a two-week, $375 loan bears little resemblance to the actual $520 cost over the five months of debt that the average user experiences.

- Fifty-eight percent of payday loan borrowers have trouble meeting monthly expenses at least half the time. These borrowers are dealing with persistent cash shortfalls rather than temporary emergencies.

- Only 14% of borrowers say they can afford to repay an average payday loan out of their monthly budgets.

- While payday loans are often presented as an alternative to overdrafting on a checking account, a majority of borrowers end up paying fees for both.

- Some borrowers ultimately turn to the same options they could have used instead of payday loans to finally pay off the loans. Forty-one percent need an outside cash infusion to eliminate payday loan debt- including getting help from friends or family, selling or pawning personal possessions, taking out another type of loan or using a tax refund.

"Payday loans are marketed as an appealing short-term option, but that does not reflect reality. Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long-term," said Nick Bourke, Pew's expert on small-dollar loans. "The loans initially provide relief, but they become a hardship. By a three-to-one margin, borrowers want more regulation of these products."

Previous Pew research shows the average payday loan is $375. Americans spend $7.4 billion per year on the loans, including an average of $520 in interest per borrower who ends up indebted for five months of the year.

The report is the second in a series that will provide research for policymakers, according to The Pew Charitable Trusts.

Methodology: Pew's survey of payday loan borrowers is a nationally representative telephone poll conducted in two parts. Demographic data is derived from 33,576 responses (margin of error +/- 0.2%).

The information about borrowers' experiences with payday loans is based on 703 interviews representative of payday loan borrowers (margin of error +/- 4.2%). 

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