6 Common Misconceptions about Payday Loans
A payday loan is also known as a cash advance. It is a short-term, unsecured loan that is taken out before your next pay period. Payday loans have received a-lot of negative attention over the years, so you have probably heard some things about them that were not true. Below are some of the common misconceptions about payday loans:
#1 Payday Loans Are Designed To Take Advantage of Low-Income Earners
Fact- Payday loans are intended for everyone. The vast majority of people who take out loans are middle class earners. Additionally, ninety-four per cent of people who take out a payday loan have a high school diploma, and 56 per cent of them have a college degree.
#2 Payday Loans Ruin Your Credit
Fact- There is no credit check required to get a payday loan. Your credit will not be negatively affected if you pay the loan back on or before its due date. In fact, your credit score may improve if you pay the loan back on time. Many payday lenders send positive reports to the major credit bureaus.
#3 Payday Lenders Purposely Try To Hide the Fees and Terms Of The Loans
Fact- Payday lenders are required to provide full disclosure of the terms and conditions. It is extremely important for you to read the fine print so that you know what you are required to pay.
#4- Payday Lenders Charge Ridiculously High Interest Rates
Fact- You have probably heard that payday loans charge interest rates of 300 per cent or more. However, that is a very misleading claim. People who claim that payday lenders charge very high interest rates are reporting the annual percentage rating, or APR. The annual percentage rating is the interest that accumulates on the loan over the course of a year. In most cases, payday loans are only taken out for two weeks. Therefore, the only way that you can pay an interest rate of 300 per cent or more is if you let the loan roll over 26 times in the course of a year.
#5 Payday Lenders Charge A-Lot of Interest to Make More Money Off Of the Consumers
Fact- Despite the fact that payday loans are in high demand, payday lenders do not make a-lot of money off of these loans. The average profit margin for a payday lender is only 3.57 per cent, which is much less than most other loan companies. The average commercial lender has a profit margin of 13.04 per cent.
#6- Life Would Be Better Without Payday Loans
Fact- If payday loans were not available, then many hardworking people would not have any feasible options. They would be forced to pay their bills late, overdraw their account or write bad checks. All of those options would be a-lot more expensive in the long run. People who are against payday loans fail to understand that hard-working people often fall on difficult times. Most people find themselves in a situation where they have more money than bills at some point. Payday loans make it easy for people to pay their bills.