There’s a lot of controversy that surrounds pay day loans, and we’re taking the time to debunk some of it’s biggest myths. Read on for more here.
The term “pay day loans” isn’t always thought of in a positive light. From grossly inaccurate myths to common misunderstandings about how pay day loans work, a lot of people seem scared of pay day loans.
However, pay day loans really can help people. In a tight spot? This choice may actually be the best for you.
Don’t believe me? Read on! We’ve put together a list of the most common pay day loan myths we’ve heard.These have been floating around for years – and they’re actually completely false.
These have been floating around for years – and they’re actually completely false.
But first, what exactly is a pay day loan? How does it work? When should you look into your own?
Let’s take a look at the facts.
So, What Is a Pay Day Loan?
A pay day loan, by definition, is usually a small amount of money (which often caps at about $500) lent at varying levels of interest rates depending on the borrower and loan company. In most pay day loan agreements, the borrower agrees to repay the loan when they receive their next paycheck (hence, the name).
In most pay day loan agreements, the borrower agrees to repay the loan when they receive their next paycheck (hence, the name).
Pay day loans are often sought out by borrowers who suddenly find themselves in a tight spot. Emergencies, job issues, a sudden injury that prevents them from working can all have a profound impact on income.
What do you do when you have a week or two with very little money coming in?
Enter pay day loans. They usually can be taken out on the day a borrower applies for one, and sometimes can be paid out within an hour or so.
When Should I Seek Out A Pay Day Loan?
There are several situations you could be in that may warrant a pay day loan:
- You have a solid plan for paying back the loan.
- You don’t want an inquiry on your credit history.
- You will be in more debt if you do not take out a pay day loan.
- You need a quick loan for an emergency need.
- You have an upcoming check, but temporarily need a small loan to get by.
As you can see, there are several reasons why anyone would want and need a pay day loan.
The Biggest Pay Day Loan Myths
Now that we’ve covered exactly what a payday loan is, let’s look at some damaging myths that keep people from seeking out pay day loans.
It is important to understand that no industry, including the financial and loan industries, is without some bad apples.
Some pay day loan companies are downright shady, and that’s a shame. Always make sure to research the pay day loan company you’re interested in for reviews.
Let’s take a look at some myths, shall we?
All Pay Day Loan Companies Are Frauds
Governments around the world are working to eliminate questionable and scummy pay day loan “impersonators” or pay day loan companies that engage in fraudulent activities.
While we won’t deny that fakes exist, most pay day loan offices and companies are 100% legal and legitimate.
Pay Day Loans Are Complicated
This is very, very false! Pay day loans (and short term loans in general) are usually extremely simple transactions.
Because of the nature of pay day loans, little has to be done to determine a borrower’s eligibility.
Except in a few cases, most borrows just have to prove they have a job and receive regular paychecks to get a pay day loan.
Pay day loans also don’t require intense credit checks so the process of applying and walking out with a pay day loan is very, very short.
In fact, most first-time pay day loan transactions are completed in less than fifteen minutes!
Pay Day Loans Have Insane Interest Rates And APRs
Yes and no.
When you look at the average interest fee for a $100 pay day loan (about $15), that ends up being about a 391% APR, or “annual percentage rate”.
Sounds crazy high, right?
However, the short length of time (about two weeks) that a pay day loan is within term is incredibly short compared to other loans.
It also helps to understand that the interest rate on a pay day loan is often much less than the fees surrounding bounced checks, late mortgages, overdraft charges, or late credit card payments.
Pay day loans are often a cheaper alternative when you look at the numbers.
Pay Day Loans Are Never Paid Off
A common myth involving pay day loans is the idea that borrowers are inherently irresponsible and will just continue to roll over their pay day loans forever.
While some irresponsible borrowers do this, there are regulations in most countries that limit the number of rollovers one can do in a certain amount of time.
Similarly, most pay day loan lenders have their own rules in place that limit rollovers.
If you can’t pay back the loan and just keep putting it off, the lender won’t get their money. So why bother to prey upon borrows by letting them roll over their loans perpetually?
People Who Get Pay Day Loans Are Poor
This is so, so false.
Emergencies can happen to anybody. Regardless of your financial standing, everybody runs into a hiccup or two in their life.
Taking out a pay day loan shouldn’t be seen as a shameful act.
Asking friends and family for loans is considered just as shameful, so what’s a person in a tight spot to do?
Taking out a pay day loan for your specific situation could be the smartest thing to do.
The Moral Of The Pay Day Loan Story
When it comes down to pay day loans, one thing rings true: If you are responsible and seek out a reputable pay day loan company when you’re in serious need, pay day loans suddenly stop being so scary.
Do you have a pay day loan success story that you want to share? We’d love to hear about it in the comments!