Almost one-third of the 30 million U.S. households who are unbanked or underbanked borrow to pay for small-dollar, short-term needs. They obtain loans through payday lenders, rent-to-own centers, pawn shops, refund anticipation lenders, or any of a variety of other non-mortgage–related sources, including friends and family.These individuals either conduct their financial lives entirely outside of traditional banks and credit unions (unbanked) or maintain a checking or savings account while also using alternative providers (underbanked). Lower-income and certain minority groups are disproportionately represented among unbanked and underbanked households.

Almost 40% of those borrowing do so to pay bills or to cover basic living expenses. Other major reasons to borrow include making up for lost income, paying for home repairs or a major purchase such as an appliance, or helping friends and family.

These statistics are open to various interpretations. They suggest that some unbanked and underbanked borrowers have too little income to cover their expenses and thus require better income supports and/or budgeting guidance. The numbers also reveal a substantial need for more households to accumulate savings so they can weather disruptions in earning power or fund major purchases without taking on debt.