Payday loans are notorious. Everyone knows them, but there are still a lot of misunderstandings about them. They are often viewed as a poor choice for your savings and credit report. But with new technology, a wide variety of lenders, and the ability to quickly get short-term loans, the misconceptions prevalent today cannot be further than the truth.
Payday loans today are a type of short term loan. You can close it on very short notice by repaying it immediately after receiving payment, or you can spread the payment over two to twelve months. In fact, the new short term loan alternative to the old school payday loan is often a far better option as you can pay off your debts without pinching a dime or scratching through until the next month, and so have a much more stable chance of rebuilding your safety net and to move forward.
1. Payday loans will only rip you off
While it is true that some payday loans have high interest rates, the ability to take out short term loans, compare payday loans online, and choose the best lender and loan deal has resulted in you getting the credit you need at very attractive rates can receive tariffs.
Of course, you pay back more than you take out, but that is the case with any loan. There’s a reason creditors have the incentive to borrow the money in the first place, and that’s the interest. If you have a good score, you can get the money you need at very little interest, especially if you have the option to repay it all early.
2. Payday loans are only beneficial to the lender
Payday loans are definitely of interest to the lender, but that doesn’t mean they are not beneficial to the borrower. They’re especially there when there’s no other way to pay for your unexpected expenses. This could be because you are taking multiple paychecks to cover the cost unit because you have reached your credit card credit limit.
By taking out a short term loan, either to repay it on your payday or slowly over several months, you can better manage your finances and offset the high cost of your unexpected bill or repair.
3. Payday loans always have hidden fees and terms
It is legally excluded for payday loans to have any hidden fees or terms, or for those terms to change after you’ve signed the contract. However, it is important that you read the terms of your loan carefully before agreeing and signing anything. The lending industry is highly regulated and works to protect consumers from unscrupulous or even illegal activities by lenders. From then on, it is up to you to ensure that you read and understand the agreement you signed.
4. Payday loans are only suitable for people with serious financial problems
You don’t have to be between a rock and a tough place to get a payday loan. In fact, it can be very responsible to take out such short term loan. The rest of your expenses don’t just go away when faced with large, unexpected costs or repairs. Just because you can cover the cost of that repair or replacement with your next paycheck doesn’t mean you can actually afford it, when you factor in your other living expenses.
The best way to easily handle these new costs is to spread the repayments with a short term loan so that you can confidently move on with your repayments without feeling the pressure or taking drastic action.
5. Payday lenders use threats or violence in collecting fees
Payday lenders are highly regulated and use the same methods to collect missed, late, or missing payments that banks do. These are fair and lawful methods of promoting repayments. In extreme situations, however, your loan can be sold to a debt collection agency who will again comply with the legal rules and regulations when collecting the money.
If you feel you have been coerced or threatened, it is imperative to follow this guide from The Balance Small Business to report the lender and their conduct to the Better Business Bureau. If your behavior exceeds the legal framework available to you, legal protection is available to you.
6. You are better off not taking out the payday loan
This misunderstanding assumes that you can ignore the expense or bill until the paycheck. While this can sometimes be an option, know that you can only do it with a written agreement from the company or the person you owe money to. If you get permission to pay the bill by a certain date, you can avoid the payday loan. For example, if you are working with a minor mechanic to fix your vehicle and working out a deal to pay your bill on the day of your payday while keeping your vehicle as collateral, you can avoid the payday loan. Alternatively, it might be better to take out a loan from a friend or family member if they have the money and are happy to help.
However, most don’t have this option, especially if you need a replacement or have to pay a fine. In these cases, it’s always better to take out a payday loan, or better yet, a short-term loan, to settle your original bill and then spread the cost out on budget.
7. Taking out payday loans is detrimental to my creditworthiness
It’s easy to see how this myth began. After all, you typically only take out a payday loan if you don’t have the money on hand until the next payday. This can be viewed as bad money management by lenders, and so taking out this payday loan may actually hurt your credit score, right? Not correct. In fact, leaving payments or bills unpaid can affect your creditworthiness. So don’t miss out on repaying any loan that you have taken out.