Financial Safety Nets Shrink: Why More Americans Rely on Small Loans

There’s a growing number of Americans who no longer rely on savings to weather financial uncertainty. In fact, more than one in four U.S. adults report having no emergency savings at all, according to Bankrate’s 2025 Emergency Savings Report.

Surprisingly, instead of drawing from savings, many are turning to credit, specifically small-dollar loans. In this article, we’ll explore why so many Americans are increasingly dependent on short-term borrowing just to get by.

Inflation and Rising Unemployment

As of August 2025, consumer prices rose by 2.9%, with food up 0.5%, shelter up 0.4%, and gasoline jumping 1.9%. These moderate increases hit hardest for households already stretched thin. Weekly jobless claims also spiked to 263,000—the highest since October 2021. Together, rising costs and job losses are leaving many Americans struggling to cover basic necessities, with little hope of saving.

On a positive note, financial inclusion has now improved through expanded access to online lending platforms. CreditNinja, for example, provides streamlined access to short-term personal installment loans of up to $500, with same-day approval and funding, even for individuals with poor credit. These loans offer a financial bridge for households navigating inflation-driven price hikes and unstable employment.

Widening Wage Gap and Shrinking Purchasing Power

Forbes reported that 43% of U.S. workers lost purchasing power as inflation outpaced wage growth. USAFacts added that although nominal wages rose by 4.2%, real growth was only 1.5% after inflation. This means workers gained about 18 more per week in actual buying power. These small increases are not enough to keep up with rising costs in food, housing, and transportation, especially for low- and middle-income earners. 

The wage gap is most visible in the service, logistics, and arts sectors, where wage growth ranged from 0.8%-1.7%. These figures fall below the inflation rate, which means workers in these sectors are effectively less in real terms. For example, a logistics worker who received a 1% raise in 2025 may have seen their paycheck increase by $30 per month. But with inflation, that extra income doesn’t go far. Since their purchasing power shrinks, many workers turn to small-dollar loans to cover shortfalls.

Rising National Debt and Eroding Public Support

According to The Epoch Times, the U.S. national debt reached $36.93 trillion this August. That equals about $108,551 per person and $279,319 per household. The Federal Reserve warns that rising debt levels could reduce government spending on programs like food assistance, housing support, and healthcare. These cuts affect low-income families the most, especially those who rely on safety nets to manage daily expenses and emergencies.

Without reliable public assistance, many low-income families turn to small-dollar loans to cover daily expenses and emergencies. Unlike payday options, installment loans offer lower costs, longer repayment terms, and fixed monthly payments that reduce the risk of rollover debt. These features make them a more sustainable option for borrowers already facing financial strain, allowing for short-term relief without compounding long-term debt.

Credit Deserts and Limited Access to Loans

There are still many areas in the U.S. where people have little or no access to safe, affordable loans. These regions, which often lack banks or have restricted loan amounts to under $500 or over $5000, are called “credit deserts.” Residents in these places are found either “liquid poor” (holding less than $500 in cash or savings) or “asset poor” (possessing less than $500 in easily liquidated assets). This lack of liquid assets leaves them especially vulnerable to financial shocks, such as job loss or rising living costs.

Another challenge in these regions is the limited access to mainstream financial services. Residents often rely on payday loans or title loans. While these products may offer immediate cash, they frequently lead to cycles of debt due to high fees, short repayment terms, and repeated renewals. Alternatively, some borrowers turn to small-dollar installment loans, which provide more predictable repayment structures and serve as a comparatively manageable option for short-term financial relief.

Policy Gaps and the Declining Public Safety Net

On July 4, President Trump signed the One Big Beautiful Bill Act, slashing federal safety net programs. The law includes $287 billion in cuts to SNAP and over $1 trillion from Medicaid and related health programs, reductions that could leave 10.9 million more Americans uninsured and worsen food insecurity for the 53 million already struggling.

Many households then increasingly turn to alternative short-term credit tools like Buy Now, Pay Later (BNPL) to bridge the gap left by shrinking public support. According to a LendingTree survey cited by CNBC, 25% of BNPL users now rely on these loans to buy groceries, a sharp rise from 14% in 2024. In fact, 60% held multiple BNPL loans at once, often stacking debt to manage essentials. This growing dependence on BNPL underscores the ripple effects of federal safety net reductions.

Small Loans, Now a Safety Net

The growing reliance on small loans reveals a deeper structural challenge: Americans are increasingly financing basic needs through private credit as public support erodes. While these tools offer short-term relief, they also expose borrowers to long-term risks, especially in underserved regions and low-income communities. Addressing this trend will require not only financial innovation but renewed investment in public programs that protect vulnerable households from falling deeper into debt.