A payday loan is a short term advance use to help you meet small, often unexpected expenses. It’s a safe and convenient option that enables you to stretch your buying power. Whether you need to pay off your holiday bills, hospital expenses, or home repairs, payday loans can help.
However, there are some myths regarding the value of payday loans. Here, we have included top seven myths and real facts about payday loans
Top 7 Myths about Payday Loans
Myth -1 PAYDAY LOANS ARE EXPENSIVE AND ACCRUE HIGH ANNUAL INTEREST RATE
Fact – Most payday loans are two-week loans and are not intended to be annual loans. Simply look for lenders with smaller fees and lower interest rates to avoid paying more money. Your interest rates should remain within a reasonable limit if your loan is paid off on time.
Myth -2 PAYDAY LOANS RESULT TO A ‘CYCLE OF DEBT
Fact – Many states restrict the number of permissible rollovers, which allows most payday loans to be taken care of within a period of eight or less.
Myth – 3 PAYDAY LOANS RESULT TO A ‘CYCLE OF DEBT’.
Fact – Payday loan customers are usually hard working, middle-class adults who do not have enough savings or unable to meet their unexpected financial emergencies.
According to a survey at the Credit Research Center:
MOST PAYDAY CUSTOMERS EARN BETWEEN $25,000 AND $50,000 ANNUALLY.
94% OF PAYDAY LOAN CUSTOMERS HAVE A HIGH SCHOOL DIPLOMA OR HIGHER DEGREE. 56% HAVE COLLEGE EDUCATION.
68% OF PAYDAY CUSTOMERS ARE UNDER 45 YEARS, WHILE ONLY 4% OF CUSTOMERS ARE ABOVE 65 YEARS
42% OWN THEIR OWN HOUSE.
100% OF CUSTOMERS NEED TO HAVE A REGULAR AND STEADY INCOME. AN ACTIVE CHECKING ACCOUNT IS REQUIRED TO QUALIFY FOR A PAYDAY LOAN.
Myth -4 MASSIVE PAYDAY LOAN FEES LEAD TO HUGE PROFITS FOR LENDERS
Short-term loans are very expensive, and that’s why most banks no longer offer payday loans. Payday lenders also need to provide for the costs of running their business, paying employees, and more. While some payday lenders might have ulterior motives, most lender are honest, trustworthy business-owners.
Myth-5 PAYDAY LENDERS TEND TO EVADE REGULATIONS.
Today, the payday loan industry is regulated in 34 states. The Community Financial Services Association of America (CFSA) is pushing industry regulations in all the 50 states. The industry is supporting fair regulations that protect both consumers and lenders.
Myth-6 PAYDAY LOAN CUSTOMERS CANNOT MANAGE TO PAY BACK THEIR LOAN ON-TIME.
The majority of lenders include underwriting criteria in their loans, which requires that customers have a stable income stream and a checking account. Actually, over 90 percent of payday loans are paid back when due.
Myth 7 PAYDAY LENDING FEES ARE DECEPTIVE.
The Truth in Lending Act (TILA) mandates that all lending fees be specified clearly in the lending agreement. Payday lenders charge single, flat fees and no hidden charges or accrued interest. According to a recent poll, 96% of surveyed payday customers understood the finance charge agreement.