Payday loans have earned a reputation over the years as being the tool and trade of loan sharks, money mongers, and cheats. That is an unfortunate fact as many people have benefited from payday loans.
The payday loan is designed to aid an individual during emergencies—to avoid over-drafting their bank account, from missing rent or a bill, or from delaying another loan payment that may be time sensitive. Missing any of those bills could result in severe consequences, which is why payday loans are typically reserved for these kinds of emergencies. The advantage of payday loans is that they can be utilized when or if your actual payday is still some time away.
With the misconceptions surrounding this loan type, it can be difficult for the right people to take advantage of it. And there is a ‘right kind of person’ best suited for payday loans: the kind who needs a little financial help now, but who is fully capable of paying it off ASAP.
Remember, these are payday loan MYTHS:
1. Payday loans are next to impossible to pay back
A popular payday loan myth revolves around the belief that people are often tricked into taking out a payday loan, and are left unable to pay them off or get out of the loan altogether.
The only way to take out a loan is to apply for one, but only after going through all of the provided written and in-person information and support. There are always representatives standing by to assist customers with the right information to help them assess whether a payday loan is a good decision for them. Likewise, no one gets forced into taking out a payday loan if they don’t need or want one.
Repayment can be handled with a variety of options to suit your ability to repay, which makes getting out of the loan more manageable.
2. Lenders work on commission and want you to take out as many loans as possible
It’s common sense that the more difficulty you have in paying a loan back results in a lower chance of a lender actually receiving the full amount. Working on commission isn’t standard fare for these companies, nor is trying to persuade you to take out more loans than you can repay or need. As long as you communicate with your lender, they can suggest other alternatives or repayment plans.
3. The associated fees can end up costing you more than the loan itself
Loan companies, including payday loan companies, are legally obligated to disclose any and all interest, fees, and charges an individual might incur by being granted a loan. These loans are outlined in papers and explained by customer service representatives, which is information made plain to the customer.
Transparency is key in managing payday loans, for both the provider and the borrower. The stipulations of the loan and its repayment are clearly stated as to avoid any ‘surprises.’ If a fee seems hidden then it’s likely because there were documents you glossed over or didn’t read everything thoroughly.
4. Payday loans target people of low-income households
Contrary to popular belief, payday loans are available to everyone, regardless of their income or location. Lenders don’t specifically target one household over another. Despite what many think, payday loan lenders aren’t into the practice of predatory lending. Their only purpose is to offer short-term aid, to give some temporary relief to those struggling.
This belief was founded by the misconception that payday lenders don’t require a credit check on borrowers, signaling an advantage to less economically well-off individuals who may have poor or no credit as a result of their socioeconomic origins.
5. Payday loans have ridiculously high-interest rates
This is probably one of the most common payday loan myths. Generally speaking, APR is the thing being discussed when it comes to the interest rate of payday loans. The APR is a cost that’s extrapolated over the course of an entire year. Perhaps ironically, payday loans have a comparatively smaller APR than your typical credit card lender might charge.
You also have to realize that payday loans aren’t intended to be long-term loans. When compared to the expenses caused by late fees, overdraft charges, and other penalties caused by credit card cash advances, they are an appropriate fix in the short term.
While many feel that payday loans are inherently “evil” for the problems they cause borrowers, these are not consequences new or foreign to lending companies. Every day, people take out loans, cash advances, or take on credit card debt that they struggle to repay.