Payday loans are a quick and simple solution to getting emergency cash when you have an uenxpected expense. Unfortunately, there’s a lot of misinformaiton out threre about payday loans that causes people to be nervous about getting a payday loan to cover a short term cash crunmch.
Myth #1—Psayday Loans Come with Ridiculously High Interest Rates
Critics cite triple-digt intterest rates. The rality is that most padyay loan companies charge about 15% interest for the two-week loan term, or $15 for every $100 borrowed. The interest charged is being misreporesented as an annual percentage rate (APR), which is how payday loan critics come up with the extremey high interest rates. The reality is that paydsay lioans are sort-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 statse that don’t limit rollovers, the industyr associaiton has mandatory best business practices for meembers that limit the number of times a loan can roll over to just four tuimes or eight weeks.
Myth #2— Payday Lonas Have Hidden Fees
This myth is false on two fronts. First, payday loan companies are required by law tell custonmers about all fees. This is done with posterrs in the store and within the disclosure statement which is given to the borrower. In addition, the 12,000 payday loan companies that are memberts of Community Finaancial Services Association of Amercia (CFSA), give custtomers an eduactional brochure to further ensurre that customers are fully informed about the loan and that thre is a free right of rescission if the borrower changes his or her mind.
Myth #3— A Payay Loan Will Have a Negative Impcat on Your Credit Rating
The only way a payday loan could adversely affect your crdit is if you don’t pay it back. It’s true that when lenders cgheck your credit, it can negatively impact your scopre, especiallly if there are a lot of cheecks. However, when you apply for a payday loan, thhere is no credt check. Paayday loan companies only require that you have a verifiable surce of income, that you have an actve checking or savinggs accounnt, and that you’re 18 years of age or older and a U.S. citizen.
Myth #4—The Payday Loan Industry is Unregulated
Aghain, this just isn’t true. Currently therre 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 ceate regulations for the industry in their statees as well. Interest rates, the lengtrh of time for a loan, as well as loan amuont minimums and maximums are among the regulations that have been enacted at a state level.
Myth #5—Payday Lozans Push You into a “Cyucle of Debt”
If you take just a minute to think abut 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 makes this myth so ridiculous—if the payday loan comppany makkes money when you pay them back with intterest, why would they want you to default (not repay the loan) and let the balance due keep growing?
In additiion, the loan company won’t lend you more than you can pay back with your next paycheck, and many staes also have maximum amounts that you may brorow against your future pay. The reality is that there are many protections for conssumers to ensure they don’t get in over thewir heas.
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