Five Myths About Payday Loans, Debunked
So many consumers have been misled by the popular myths surrounding payday loans that they’re wary of submitting a request for one themselves, no matter how much it could help. But those myths are exactly that: myths. Myths are made-up stories with very little fact involved, and those surrounding payday loans need to be set straight.
Misconception #1: Excessive Fees
Probably the most common misconception surrounding payday loans is that they’re associated with inflated fees. In reality, the only fees paid by the loan recipient usually are interest-based, so they can be very low if the loan is repaid immediately per the repayment terms. And of course, just like traditional loans, those fees do add up if the loan is not repaid on time. However, this is not any greater of a risk than consumers would find when submitting a request for any loan, and is often mitigated by discounts granted in the case of early repayment.
Misconception #2: Hidden Catches
Another common myth surrounding payday loans is that there must be some kind of gimmick involved. It seems too good to be true for many. While it is true that the lending guidelines are much more lenient than those outlined by traditional lenders, that doesn’t mean there’s any kind of hidden catch. Applicants have every opportunity to change their mind, even more so than within the more rigid lending structure found in a standard bank.
Misconception #3: The Debt Cycle
Unfortunately, the idea that payday loans perpetuate debt instead of providing a way to escape that debt is one thing keeping many consumers from getting the help they truly need. Since the loans are fast to obtain, they are sometimes overused, which leads to some consumers getting deeper into debt. There’s no reason this needs to happen, as long as the loans are used as intended instead of abused, and repayment terms of the original loan are met. The vast majority of the time, they are, but of course it only takes a few bad apples to spoil the appearance of the bunch for every one else. When used as intended, payday loans help consumers, not hurt them.
Misconception #4: Preying on Lower Income Households
Financial crisis can happen at any income level, because emergencies aren’t limited to any one particular wage bracket. Just as many of those with large paychecks apply for help as those with smaller paychecks, although that is not widely known. The goal of those providing payday loans is to help anyone in need, no matter how much or how little money they make.
Misconception #5: Unregulated Lending
Although the popular assumption says otherwise, payday lenders are bound by the exact same federal regulations as every other kind of lender. This means payday loans abide by the Truth in Lending Act that is federally mandated by the FDIC, ensuring transparent lending policies and requirements for all consumers to easily understand.