The recent increase in the popularity of payday loans has given rise to lots of myths about them flying around. However, on closer inspection, if you compare these myths with the truths, you will find that in most cases these types of loans are extremely useful to help people with their finances when they need it the most.
Myth 1 – Interest On Payday Loans Is Way Too High
One of the most common myths about payday loans is that their interest rates are too high, causing them to be too expensive to repay. It is key though to look more closely at the context in which this type of interest works. The APR ( Annual Percentage Rate), the interest that is used on payday loans, is calculated in relation to the loan over the timeframe of a year. Because normally the loans are small and are only loaned for a short amount of time, the rate seems inflated when compared to a short-term service.
When looking to take out a payday loan, it is probably a good idea to just look at how much you are going to have to pay in total when repaying your loans rather than the interest rate.
Myth 2 – Payday Loans Companies Operate With Hidden Fees
Another misconception, is the terms and conditions for the repayments for the payday loans are laid out intentionally to confuse customers. Most credible payday loan companies will lay out their repayment costs in an easy to use way, so that you are able to see exactly how much you are going to have to pay back. This means that there will be no scary surprises when it comes to your repayment day, meaning that there will be no hidden fees or extra costs.
Myth 3– You Can Only Apply For A Loan With Good Credit
One of the great things about getting a payday loan is that they are available to people with any credit history. The majority of companies will not even do a credit check, meaning that many who would not be able to get a loan from a more traditional ‘high street’ lender, would be able to get the money this way. Payday loans companies are able to lend to people with bad credit because the loans are secured against your salary or wages, meaning any risk is eliminated. More important to the lender, is your ability to repay the loan, rather than any past difficulties you may have had.
Myth 4 – Payday Loans Are Only For Emergencies
Although the majority of customers will use payday loans only for emergencies, you don’t have to only use them for this purpose. They could be used to pay for anything from a small weekend break away to a wedding gift or birthday present. Many people may also find that they are unable to ask for a loan from family or friends, so a payday loan is another option for them. The loan companies will not ask you what you need the money for, so it’s completely up to you.
Myth 5 – Payday Loans Trap People In A Never Ending Cycle Of Debt
As long as you are in a position to comfortably make your repayments, then you should not encounter any problems. Payday loans should only be used though to solve temporary financial needs, and should not be used to resolve longer term debt problems. If you feel that you wouldn’t be able to make the repayments, then it is probably advisable not to take out a payday loan in the first instance.