Payday Lending Gains Favor Among Michigan Elderly Borrowers
Several microfinance institutions recorded an increase in the number of clients of retirement age in Michigan. Pensioners do not have enough money for current expenses, and banks are in no hurry to issue loans to older customers.
Pensioners are increasingly turning to microfinance organizations for loans. This conclusion was introduced in Banking and Credit Union Corporate Activity Reports that analyzed the activity of older clients in the period from January to September 2022 compared to the same period last year.
Forced by necessity
The increase in the number of pensioners who take out payday loans in Michigan is due to several reasons. Firstly, it is affected by the general increase in the number of pensioners in the state. There are more elderly people, and among them there are many who may have been officially retired for a long time, but at the same time worked, and then stopped.
Secondly, older people need funds to meet current needs against the backdrop of declining real incomes. According to experts, the real incomes of the population fell for four years in a row from 2018 to 2022.
Thirdly, clients of retirement age in Michigan are forced to apply for payday loans First Federal because they are denied banking services. Payday loans are easy to access and involve no paperwork. Such loans can even be issued without a job. If a pensioner does not have guarantors or collateral, it is not so easy to get a bank loan. However, mortgages for seniors do exist.
Conservative banks are cautious in their approach to older borrowers, they are afraid to issue long-term loans. In addition, pensioners usually need small loans, which is why it is not profitable for banks to work with them.
According to TransUnion, from January to September 2022, banks reduced the issuance of credit cards to people over 70 years old – the approval rate of applications decreased from 64.7% to 34.7%. At the same time, the approval rate for clients under 50 increased from 30.8% to 40.9%. Here’s a list of the best credit cards for seniors available in several key categories.
Lending growth across Michigan seniors
People of retirement age make up one of the smallest groups of clients of banks and microfinance institutions in MI. According to them, customers over 65 years account for less than 5% of all cash loans and about 1% of credit card issues.
These data are confirmed by the DIFS Annual Report. Clients aged 60 to 65 years make up only 6% of borrowers of financial institutions (data for the first quarter of 2022), and people over 65 and even less make up only 5.2%. There are slightly more borrowers aged 60 to 65 years – 7.1%, and customers over 65 years old – 5.7%.
Nevertheless, the activity of older people in Michigan is growing year by year, as confirmed in several microfinance companies and credit bureaus.
The growth of clients of retirement age in microfinance institutions and banks is also confirmed by Equifax. According to the credit bureau, in the first quarter of 2022, the share of borrowers of retirement age amounted to 15% of the total number of Michigan residents applying for loans, which is 4 percentage points. more than the same date in 2020 and 1 percentage point more than last year. According to another bureau, Experian, the share of borrower clients over the age of 65 in banks increased from 4.9% in the first quarter of 2022 to 5.2% in the same period of this year.
Clients 60+ rarely delay payment
Most microfinance companies in the state are seeing this trend.
The average requested amount of clients aged 18–24 is indeed on average 30–35% lower than that of clients aged 60+. The share of approved applications for clients aged 18-24 does not exceed 10% of the total flow of applications submitted by borrowers from this age category in Michigan – this is the minimum level of approval among all age categories. In turn, older clients rarely delay payment, they are considered the most responsible borrowers.
A few microfinance institutions noted that they are observing a trend when the average payday loan amount grows depending on the increase in the borrowers’ age.
The main reason for the gradual increase in the requested amounts in older categories is the evolution of material well-being. At a young age, income is usually just beginning to form, gradually increasing as the length of service and career progress increases. Corresponding to the growth of security, the amount of material requests also grows.
Banks have reduced their risk appetite in lending to pensioners
According to TransUnion as of September 2022, pensioners have received 1,817 payday loans in Michigan (an increase of 15.8% over the year).
Experts noted that pensioners began to take payday loans more often, as banks reduced their interest in this category of borrowers during the pandemic.
Pensioners are most exposed to the risks of a significant deterioration in health, incl. due to the pandemic, so a number of banks could reduce their risk appetite in lending to pensioners and some borrowers in this segment are forced to look for other sources of financing for their needs. Given high real inflation and relatively low pensions, the demand of pensioners for borrowed funds is not decreasing, and applying for payday loans is a forced step.
In a pandemic, due to an increase in mortality, the number of pensioners continues to decline rapidly, and the risk of survival increases. In addition, major US banks introduced macroprudential limits amid concerns about the growth in the debt load of retail clients. Accordingly, banks could reduce the approval of loans to pensioners. Most likely, pensioners need money for everyday needs (medicines, food, utility bills). If it is not possible to get funds from the bank, then you have to contact a microfinance institution.
TransUnion clarified that banks have always classified pensioners as high-risk clients and the conditions for issuing loans were stricter than for the younger population.
What are the prospects?
Current trends are such that microfinance institutions in Michigan are offering more and more loans that are targeted at clients aged 50-65. This segment of borrowers is among the least indebted. In addition, older people are more disciplined and try to pay their loan obligations on time. Owning movable and immovable property also increases the likelihood of loan repayment without delay.