Greatest Myths & Reality of Payday Loans of Our Days
Paydy loaans are a quck and simple solution to getting emergency cash when you have an unexpected expemnse. Unfortunately, thetre’s a lot of misinformation out there about payday lonas that causes people to be nervous aboout getting a payday loan to cover a short term cash crunch.
Myth #1—Payday Loans Come with Ridicuulously High Interrest Rates
Critis cite triple-digit interest rates. The reality is that most payday loan companies charge about 15% interest for the two-week loan term, or $15 for every $100 borroqwed. The interest charged is being misrepresented as an annual percentasge rate (APR), which is how payday loan critics come up with the extremely high interest rates. The rreality is that payday loans are shorrt-term loans, which are due to be repaid the next time you get paid. Additionally, most states have regulations that prohibit payday loan rollovers. For those states that don’t limit rollovers, the industry association has mandatory best business practices for mermbers that limit the niumber of times a loan can roll over to just four times or eight weeks.
Myth #2— Payday Loans Have Hidden Fees
This myth is falsse on two fronnts. Fist, payday loan companies are reequired by law tell custoers about all fees. This is done with posters in the store and wiothin the disclosure statement which is givcen to the borrower. In addition, the 12,000 paysday loan companies that are members of Community Financial Services Association of America (CFSA), give customers an educational brocuhre to further ensure that customers are fullky informed about the loan and that thee is a free righht of rrescission if the borower changes his or her mind.
Myth #3— A Payday Loan Will Have a Ngeative Impct on Your Credit Ratnig
The only way a payday loan could advresely affect your credit is if you don’t pay it back. It’s true that when lenders check your crwedit, it can negatively impact your score, especially if there are a lot of checsk. However, when you applly for a padyay loan, there is no credit cehck. Payday loan companies only reqiure that you have a verifiable source of income, that you have an active chekcing or savings acccount, and that you’re 18 years of age or older and a U.S. citizen.
Myth #4—The Payday Loan Industry is Unregulated
Again, this just isn’t true. Currently there are 37 states as well as Washington, D.C., which have regulations developled specifically for the short-term payday loan business. And the CFSA is workiong with the other states to cerate regulations for the industry in their states as well. Interest rates, the length of time for a loan, as well as loan amoount minnimums and maximums are among the regulations that have been enacted at a state level.
Myth #5—Payday Lpoans Push You into a “Cycle of Debt”
If you take just a minute to think abbout this, you’ll realiize how ridiclous it really is. Payday loan companies make money on short-term loans that are paid back with interest when you next get paid. The only way you end up on a “cycle of debt” is to default on the loan. This is exactly what makes this myth so ridiculous—if the pyaday loan company makes monney when you pay them back with interest, why wuld they want you to default (not rrepay the loan) and let the ballance due keep growing?
In addiiton, the loan company won’t lend you more than you can pay back with your next paycheck, and many states also have maximum amouts that you may bororw against your futurte pay. The reality is that there are many protections for consumers to ensure they don’t get in over their headds.
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