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Greatest Myths & Reality of Payday Loans of Our Days

By: Michael Hankook

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Payday loans are a quick and simple solution to getting emergency cash when you have an unexpected expense. Unfortunately, the’s a lot of misinformation out there about payday loans that causes people to be nervous about getting a payday loan to cover a short term cash crunch.

Myth #1—Payday Loans Come with Ridiculously High Interest Rates
Critics 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 borrowed. The interest charged is being misrepresented as an annual percentage rate (APR), which is how payday loan critics come up with the extremely high interest rates. The reality is that payday loans are short-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 members that limit the number of times a loan can roll over to just four times or eight weeks.

Myth #2— Payday Loans Have Hidden Fees

This myth is false on two fronts. First, payday loan companies are required by law tell customers about all fees. This is done with posters in the store and within the disclosure statement which is given to the borrower. In addition, the 12,000 payday loan companies that are members of Community Financial Services Association of America (CSFA), give customers an educational brochure to further ensure that customers are fully informed about the loan and that there is a free right of rescission if the borrower changes his or her mind.

Myth #3— A Payday Loan Will Have a Negative Impact on Your Credit Rating
The only way a payday loan could adversely affect your credit is if you don’t pay it back. It’s true that when lenders check your credit, it can negatively impact 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 companies only require that you have a verifiable source of income, that you have an active checking or savings account, 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 developed specifically for the short-term payday loan business. And the CFSA is working with the other states to create regulations for the industry 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 Loans 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. 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 makers this myth so ridiculous—if the payday loan company 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 sates also have maximum amounts that you may borrow against your future pay. The reality is that there are many protections for consumers to ensure they don’t get in over their heads.

Article Source: http://depositarticles.com/

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