—>Listen to the payday loan industry and their apologists and they'll try to tell you that their customers are savvy and just need of a break to tide them over. But a new survey (PDF) shows that most payday loans are to repay other payday loans. Of the 80% of borrowers who take out multiple payday loans in a year:

• 1/2 of repeat loans are opened at the borrower's first opportunity, immediately or after a 24-hour waiting period, depending on state rules.
• 87% of repeat loans are opened within two weeks, or generally before the next payday.
• Only 6% percent of subsequent payday loans are taken out longer than a month after a previous loan was paid off.

Much like circus runaways who find themselves slaves to the bigtop, never able to get ahead enough to pay off their room, board and costume fees, payday lenders stoke demand for more loans with loan terms that encourage rapid re-borrowing. Once you hit the sweet spot of a borrower with a limited income who can't or won't generate extra income or cut back expenditures, you've hooked yourself a nice cow you can keep milking and milking until it shrivels - or they get a loan from another payday lender to pay you off.

Phantom Demand: Payday Lenders Create Their Own Demand With Loan Terms That Generate Rapid Re-Borrowing [Center For Responsible Lending]
Complete report (PDF)
(Photo: Tim Norvell)