In a survey of more than 1,000 millennials ages 18-34, more than half said they used alternative lending services, including prepaid cards, check cashing, pawn shops and payday loans, according USA Today.
The survey was conducted by alternative financial products company Think Finance, and it found that while 92 percent of those surveyed said they have a bank account, more than 80 percent said emergency credit options are at least somewhat important to them.
"It's flexibility and controllability that's really important for millennials," Ken Rees, president and CEO of Think Finance, told USA Today. "Banks don't have great products for people who need short-term credit. They're not really set up for that."
The top two reasons given by the survey respondents for using alternative products were convenience and better hours than banks. Nearly a quarter cited fewer fees and 13 percent cited more predictable fees.
But these alternative financial products often come with higher fees and costs than traditional banking. The Consumer Financial Protection Bureau released a report in April that found that on the median payday loan of $350, the typical APR was more than 300 percent and the median consumer paid $457 in fees. The bureau used the analogy of taking out a payday loan to taking a taxi on a cross-country trip.1 comment on this story
The USA Today article said these alternative financial product companies may be winning over millennial customers due to clever marketing, such as calling an interest payment a fee. Mitch Weiss, a professor in personal finance at the University of Hartford, explained in an inteview with USA Today, "The way they approach the business is, we're not charging you interest, we just charge you a fee. When you think fee, your reaction is it's a one-time thing."
According to Fox Business News, a reason millennials might be turning to these products is a lack of established credit. In that piece, Gerri Detweiler, personal finance expert at Credit.com, advised that millennials improve their credit by checking their credit history, reading the fine print of a loan for hidden high interest rates and asking for help.