For many Houston-area residents, high-cost loans, sometimes referred to as predatory lending products, are not a last resort for discretionary spending — they are a way to keep food on the table, pay rent or cover everyday bills, according to new research from Rice University’s Kinder Institute for Urban Research.
The study finds that nearly 1 in 5 Houston-area residents (19%) used at least one high-cost lending product in the past year, far exceeding the national rate of 5.8% of U.S. households in 2023. High-cost loans include products such as payday loans, pawnshop loans, auto title loans and tax refund advances, which often carry high fees, high interest rates and unclear terms.
“Predatory lending products are taking advantage of individuals and families who are facing high financial pressures,” said Dan Potter, co-director of the Houston Population Research Center at the Kinder Institute and faculty member in Rice’s Social Policy Analysis program. “These products are tending to get used to cover basic needs because wages are not keeping up with costs. ”
Houston provides a revealing context for examining high-cost lending use, the researchers said. In 2023, the region had the second fastest-growing economy among major U.S. cities, yet in 2024 it also recorded the highest poverty rate (21.2%) among major cities.
Financial strain extends beyond poverty alone. Nearly half of Houston-area renters spend more than 30% of their income on housing, and about two-thirds of residents lack enough savings to cover three months of living expenses if they were to lose their primary source of income.
“Housing costs layered with rising food prices, utility bills, more expensive child care and transportation costs mean that often people’s paychecks are not covering even basic necessities,” Potter said. “That’s when we see a large number of families in the Houston area needing to turn to these loans to bridge the gap because they promise short-term solutions even while creating longer term problems.”
Borrowing to meet basic needs
Among residents who reported using a high-cost loan, the most common reasons involved everyday necessities:
- 57% used the money to pay for food and groceries
- 51% used it to cover rent or mortgage payments
- 47% used it for regular expenses such as utilities, car payments, credit card bills or prescriptions
- 40% used it for unexpected expenses, including car or home repairs, veterinary bills or emergency medical costs
Payday loans were the most frequently used single product, followed by pawnshop loans, auto title loans and tax refund advances. Nearly 40% of borrowers reported using more than one type of high-cost lending product in the past year.
The study also documents disparities in high-cost loan use across racial and ethnic groups. About 34% of Black residents and 21% of Hispanic residents reported using at least one high-cost lending product in the past year, compared with 10% of white residents and 6% of Asian residents.
Access to traditional credit was strongly related to usage. Residents who applied for a loan and were turned down had a 29% likelihood of using a high-cost loan, compared with 17% among those approved for the full amount. Lower credit scores were also associated with higher use: Residents with poor credit had a 27% likelihood of using high-cost loans, compared with 11% among those with very good or excellent credit.
Savings emerged as another key factor. Once residents had enough savings to cover at least three months of expenses, their likelihood of using high-cost loans dropped substantially.
“That three-month savings threshold really stands out,” Potter said. “It marks a point where households are better able to absorb shocks without relying on high-cost borrowing.”
The researchers caution that changes in access to mainstream credit may increase reliance on high-cost loans among households already operating with little financial cushion.
The findings also point to opportunities, Potter said, for financial institutions, nonprofits and public agencies to expand access to safer, more affordable financial products and help residents build emergency savings.
The research brief, “Use of Predatory Lending Products in the Houston Area,” and authored by Joy Njeh, draws on survey data from the Greater Houston Community Panel, including responses from about 5,000 Harris County residents surveyed online in English and Spanish in late 2024.
The full report is available on Urban Edge, the Kinder Institute’s digital publication.
For media inquiries or to schedule an interview, contact Kat Cosley Trigg at kat.cosley.trigg@rice.edu.