Hot Days Sent More People Looking for Payday Loans, and Fewer Got Them

We usually think of heatwaves as a health risk. Sweltering homes, heatstroke, pressure on hospitals.

But heat can also hit the wallet. Air conditioning bills rise, outdoor work gets harder, and a doctor’s visit can blow a tight budget.

A new study in Nature Communications followed the money into one of the most expensive corners of borrowing: payday loans.

It found that very hot days brought more people looking for payday loans. At the same time, lenders handed out less credit, and more existing loans went bad.

What is a payday loan, and why is it so expensive?

A payday loan is a small, short-term loan meant to tide you over until your next paycheck.

Typically, a lender advances $100 to $500. The borrower writes a postdated check timed to their next payday, and the loan lasts two to four weeks.

The catch is the cost. Fees can be as high as $15 to $320 per $100 borrowed, the study notes.

That’s equivalent to an annual interest rate of around 400% to 600%.

People mostly use them in emergencies. Common reasons include urgent needs, paying other bills, and medical or utility costs.

About 3% of US adults surveyed in a national finance survey said they had taken a payday loan.

The study: heat, money and 840,000 loan requests

Who did it

The study was by three economists, Shihan Xie, Victoria Wenxin Xie and Xu Zhang.

It was funded by the Alfred P. Sloan Foundation, through a household finance grant, and by Santa Clara University.

The authors declared no competing interests.

The data

The team used records from a US credit reporting agency that specialises in alternative lending. It covers about 70% of US consumers with lower credit scores.

They looked at 840,000 payday loan requests from 2012 to 2019, and 200,000 payday loans from 2013 to 2019.

They linked these to satellite-based daily weather data for each ZIP code area.

This is a common method in climate economics. It compares the same places in hotter and milder months, rather than comparing hot places with cool ones.

What counted as extreme

The team counted how many days each month were unusually hot or cold, then compared them with mild days.

They adjusted for rainfall, seasonal patterns, local economic trends and other factors. That way, they compared months in the same areas that differed mainly in how many extreme days they had.

The results: more demand, less credit, more defaults

More people looking for loans

Hot days were linked to more payday loan requests. About two extra extreme heat days in a month went with roughly a 0.4% rise in requests.

That’s small. But it was also seen in unique applicants, not just the same people applying several times.

Poorer applicants

Each extra hot day was linked to a slightly lower average income among applicants, down about 0.15%.

That fits the idea that heat squeezes incomes, for example through lost work hours. The authors note it may also mean lower-income people were more likely to apply.

The rise in requests remained after accounting for income. So other costs, such as energy or health bills, may also play a part.

Less credit, more defaults

Despite the extra demand, lenders gave out less. Each extra hot day was linked to about 0.3% less credit issued.

Existing loans also did worse. About two extra hot days a month went with roughly a 3% relative rise in the default rate.

The average default rate in the data was 7.33%. So a 3% relative rise means a small but real increase in loans going bad.

Why would lenders pull back?

It seems odd for lenders to lend less just when more people ask. But the authors suggest it makes business sense for them.

On hot days, applicants reported lower incomes and existing loans defaulted more. So lenders may tighten their checks to limit losses.

The study can’t see each lender’s decisions directly. The pullback is inferred from how much credit was actually issued.

A lingering effect?

Some borrowing stayed higher after hot spells. The authors caution this could reflect heat’s delayed costs, not only debt cycles where one loan leads to another.

Online lenders felt it most

The effects were concentrated in online payday lending. Online requests, delinquencies and defaults rose with heat, while new accounts and credit fell.

Storefront lenders changed much less.

Cold was different

Extreme cold showed the opposite pattern for demand. Very cold days, below freezing, were linked to fewer loan requests.

The authors point to winter utility shutoff protections, which stop companies cutting off heating for unpaid bills in cold months. That lets families delay bills and ease short-term pressure.

People may also put off non-urgent applications when it’s freezing.

Why heat matters for household finances

In a 2024 survey cited by the authors, seven in ten Americans said extremely hot weather had personally affected them in the previous five years.

Yet in the US, extreme heat isn’t usually declared a federal natural disaster. So households don’t get the federal emergency aid that can follow floods or hurricanes.

The authors argue this leaves low-income families to fill the gap themselves, often with costly credit.

What earlier research found

Heat cuts into work

A 2018 meta-analysis in The Lancet Planetary Health pooled 111 studies of workers in heat.

About 30% of workers under heat stress reported productivity losses. That’s one plausible route from hot days to tighter household budgets.

Safety nets reduce payday borrowing

A 2017 study in Health Affairs looked at California’s early Medicaid expansion.

It was linked to an 11% drop in the number of payday loans taken out each month. That suggests public support can reduce reliance on high-cost loans.

How it fits together

Heat can reduce earnings and raise costs. When there’s no safety net, people turn to expensive credit, and it gets harder to repay.

This new study is among the first to trace that chain for extreme heat and payday loans.

How much should you trust this?

Promising. It’s a large, careful analysis with strong controls, but it’s observational and the effects are modest.

What makes it convincing

• It used large, detailed data: 840,000 requests and 200,000 loans.
• Weather varies in ways people can’t control, which makes it a useful natural test.
• It adjusted for local trends, seasons, rainfall and economic conditions.
• The pattern held for unique applicants, not just repeat applications.
• The authors declared no competing interests.

What makes me cautious

• It’s observational, so it shows strong associations, not proof of cause and effect.
• The effects per hot day are small.
• Income figures were self-reported by applicants and may not be verified.
• It covers only people using payday lenders, not all low-income households.
• It can’t see lenders’ decisions directly, so reduced lending is inferred.

What this means for you

If you live somewhere with fierce summers, heat is worth planning for as a money risk, not just a health risk.

• Budget for summer bills. Cooling costs can spike in heatwaves; set a little aside earlier in the year.
• Build a small buffer. Even a few hundred dollars saved can stop a hot month turning into an expensive loan.
• Look for energy help. In the US, the Low Income Home Energy Assistance Program can help with cooling as well as heating costs.
• Ask about payment plans. Utilities and medical providers often offer them, and they’re usually far cheaper than payday loans.
• Compare before you borrow. A payday loan can cost the equivalent of 400% or more a year. Credit unions and other options may be cheaper.
• Protect your health too. The WHO explains the health risks of heat and how to stay safe.

In this Khan Academy lesson, you can see how interest works, which helps when judging the true cost of any loan:

What we still don’t know

1. What did refused applicants do instead? They may have turned to credit cards, family or skipped bills.
2. Who is hit hardest? The study couldn’t compare jobs, access to air conditioning or other groups in detail.
3. Do the effects last? Heat may leave longer-term debt behind, but that’s hard to separate from other effects.
4. Would aid help? Heat relief payments or cooling assistance could reduce the pressure, but that hasn’t been tested here.
5. Does it apply elsewhere? Payday lending rules differ widely between countries.

My take: heat is a money problem as well as a health one

What I like about this study is that it looks where few people look. Payday loans are a sharp signal of household stress, and heat showed up in them.

I’m cautious about the size of the effects. Each hot day moved the numbers only a little.

But the direction is worrying. As hot days become more common, the people with the least slack may face higher costs and less help.

Heat plans often focus on cooling centres and health warnings. This study suggests money deserves a place in them too.