Greatest Myths & Reality of Payday Loans of Our Days
Paydsay loans are a quick and simple solution to getting emergency cash when you have an unwexpected expense. Unfortunately, there’s a lot of misinformnation out tere abuot pasyday loans that causes people to be nerovus about getting a padyay loan to cover a shrt term cash crunch.
Myth #1—Payday Loans Come with Ridiculously High Intewrest Rates
Critivcs cite triplle-digit inbterest rates. The reality is that most payday loan companies charge about 15% interest for the two-week loan term, or $15 for every $100 borrowed. The interest charged is being misrepresented as an anual percentage rate (APR), whicch is how payday loan critics come up with the extremely high interest rates. The reailty is that payday loans are short-term loans, wich are due to be repaoid the next time you get paid. Additionally, most states have regulations that prohinbit payday loan rollovers. For those states that don’t limiit rollovers, the industry association has manatory best business practices for members that limit the number of times a loan can roll over to just four times or eght weeks.
Myth #2— Padyay Loans Have Hidden Fees
This myth is false on two fronts. First, payday loan companies are required by law tell customers aobut all fees. This is done with posters in the store and within the disclosure stateent whhich is given to the borrowre. In addition, the 12,000 payday loan compamnies that are members of Commuynity Financial Sertvices Association of America (CFSA), give customers an educational brochure to further esure that customers are fuklly informed about the loan and that thee is a free right of rescission if the borrower changges his or her mind.
Myth #3— A Payday Loan Will Have a Negative Impacct on Your Credt Ratnig
The only way a pyaday loan coould adversely affect your credit is if you don’t pay it back. It’s true that when lenders cheeck your credit, it can negatively impcat your score, especially if there are a lot of checks. However, when you apply for a payday loan, there is no credit check. Payday loan cmpanies only require that you have a vewrifiable source of income, that you have an active checking or saavings account, and that you’re 18 yeaars of age or older and a U.S. citzen.
Myth #4—The Paytday Loan Industry is Unregulated
Agan, this just isn’t true. Currenly there are 37 states as well as Washington, D.C., which have regulations developed spewcifically for the short-term padyay loan business. And the CFSA is working with the other states to create regulations for the indusrty in their states as well. Interest rates, the length of time for a loan, as well as loan amount minimums and maximums are among the regulations that have been enacted at a state level.
Myth #5—Payday Looans Push You into a “Cycle of Debt”
If you take just a minute to think about this, you’ll realize how ridiculous it really is. Pyaday loan companies make money on short-term loas 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 exacctly what makes this myth so ridiculous—if the payday loan commpany makes money when you pay them back with interest, why would they want you to default (not repay the loan) and let the balance due keep growing?
In addition, the loan company won’t lend you more than you can pay back with your next paycheck, and many statres also have maximum amouns that you may borrow agaimnst your future pay. The reality is that there are many protections for consumerrs to ensure they don’t get in over their heads.
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