Top 5 Payday Loan Myths Uncovered
Payday Loans Aren't As Bad As You Think
When it comes to a serious need for cash, there are few options that get you the money you need, when you need it without any mention of your credit history. With such an option at your disposal, it is important to know the facts - not the myths - of payday loans.
1. Payday loans cheat you out of money
Truth: Payday loans are far simpler than people realize. They are not a ploy to cheat you out of money, rather they are an excellent tool to utilize when you need money and your options are limited. People incorrectly believe that these loans, also known as paycheck advances, cash advances and cash loans, are scams because if it sounds too good to be true, there has to be a catch. With their easy accessibility and relatively easy application process, payday loans are simply one option of getting cash into your pocket.
2. Only lenders benefit from such loans
Truth: If lenders were the only ones who benefit, why is it so easy for you to get money when you need it, without the hassle of a waiting period, a credit check or collateral? Truth is you benefit just as much as the lenders do as payday loans are a well-oiled financial machine. The lender puts the money directly into your account via direct deposit and when the loan expires (usually 2 weeks later or at the time of your next paycheck), your repayment automatically goes through. You don't have to deal with paying in person or even speaking to the lender on the phone. When you're in a bind and you need money fast, you absolutely benefit from this kind of loan.
3. Only people with serious financial problems get payday loans
Truth: Payday loans are completely non-discriminatory meaning the average borrower has an income of $25,000-$50,000 and 94% have a high school diploma or higher while 56% has at least some college experience or a complete degree. This income bracket describes the overall middle-class, the everyday American. They are not for any specific demographic; rather they are merely for those who need a little help to get through the month.
4. Payday loans are expensive with massive interest rates
Truth: Most people believe payday loans are evil due to exorbitant interest rates. For the truth about the dollar signs, you must first understand the context with which payday loans operate. The period of the loan is generally 2 weeks. The average loan is relatively small as it tends to be around the size of your paycheck. This isn't a home loan worth thousands; it's a cash loan worth a couple hundred dollars. The interest rate is considered higher than most (around 15%), but it's only applied to the time frame of the loan (2 weeks) meaning you're paying the amount of the loan plus a small amount of interest. Now, if the loan spanned a year, then the amount of interest would be astronomical, but it's not because the loan is paid back earlier.
5. Payday loans should only be a last resort of desperation
Truth: It's your money and your life. If you need a little extra help with bills or a vacation, these loans are an excellent resource. If you can borrow the money from a friend, by all means do so. But with cash loans, you're in and out with your money avoiding the hassle and the embarrassment of asking a friend for cash. They're simple, easy and everyone is a candidate as long as they have a job and an active checking or savings account. In terms of being a last resort, payday loans are an attractive option when your chips are down.