There are a lot of misconceptions about payday loans that can make them seem like a very scary and intimidating concept. However, the reality is that payday loans can be a useful way to get help when you are in an emergency and still have a little while until your next paycheck. Keep reading to learn the actual truths behind some common payday loan myths.
Payday Loan Companies Take Advantage of Low Income Consumers
Those lobbying against payday loans like to claim that these companies are selfish lenders trying to get money from the most vulnerable part of the population. However, the reality is that payday loan companies provide a valuable service. They are typically the only way to get short-term loans, so they are important if you run into problems. Without payday loans, a worker who has an unexpected medical emergency could have to choose between getting medicine or eating food until their next paycheck.
Payday Lenders Try to Target People Who Cannot Pay
When you start looking up “payday loan places near me,” you may have people tell you that you should not trust lenders because they try to sell loans to those who cannot pay and trap people in a cycle of debt. However, aiming for an audience who cannot pay is a bad business practice no lender follows. They might hypothetically get more money from a person who is being charged late fees, but this is irrelevant when the customer is not paying anyways. The cost and hassle of trying to get funds back is not worth it, so companies only try to lend to those who seem likely to pay it back.
The Incredibly High APR Makes Payday Loans Unfair
The APR attached to an online payday loan might seem high, but it does not give you an accurate picture of fees associated with the loan. Payday loan rates might seem far higher than mortgage or car loan rates, but they are so short term that you are not charged a lot. Since most people with a payday loan only pay interest for a few weeks instead of several months, you just end up paying a few dollars in interest rates. The typical charge for a $100 loan is around $15.
Payday Loan Companies Use Dishonest Tactics to Trick You
The idea that sketchy loan salespeople are tricking innocent consumers into getting loans they do not understand is simply untrue. Just like other financial institutions, payday loan companies are regulated heavily by the Consumer Bill of Rights, CFSA Best Practices, and The Fair Debt Collection Practices Act. As long as you take the time to carefully read all the fine print, you can never be surprised with sudden fees or demands for repayment, and you cannot be harassed for payment.
It’s Cheaper to Just Accept Bank Overdraft Fees Instead of Taking a Loan
You might have had a well-intentioned friend tell you this, but it is easy to dispel this myth once you take a look at the numbers. The average bank overdraft fee is $30 to $54, and a credit card late fee is around $40. In contrast, a payday loan usually has around $15 in fees. Therefore, it tends to be far cheaper to start searching “payday loan places near me” instead of writing checks you know cannot be cashed.
As you can see, payday loans are not a good choice for casual, unnecessary purchases, but they can be very useful in an emergency. Now that you know more about payday loans, it is easier to separate fact from fiction and decide if they are really right for you.