Payday lending is one of the most talked-about activities. However, the subject of discussion is often not facts, but myths. So far, unscrupulous players remain on the US market, violating the law both in the procedure for issuing a loan and in collecting debts. Due to such violations, a negative image of payday organizations is formed. But most of them are myths that arise under the influence of misunderstanding or ignorance. Let’s consider 6 common myths about payday loans (also known as cash advance loans).
Fact v. Fiction: The Truth about Payday Lending Industry
Myth 1: Payday loans are very expensive
Payday loans are considered fast not only because of the prompt processing procedure. They are issued for a short period not exceeding 7-30 days. The amount ranges from $100 to $1,000. If you carry out the calculation, it becomes clear that for a $700 loan taken for 10 days with an interest of 2% per day, you will have to overpay no more than 20% of the amount, that is, $840. You should also bear in mind that payday companies are not entitled to raise the state-authorized interest rate.
Myth 2: The task of payday lenders is to trap borrowers in a cycle of debt
Far from it. Payday lenders are regulated by the Consumer Financial Protection Bureau (CFPB). The payday company is required to show the full amount that the borrower overpays, as well as the total cost of the loan. In addition, payday lenders are interested in the person repaying and applying for another loan. Losing a profitable client is not in the best interests of the company.
Myth 3: People take payday loans only out of despair
Short-term loans allow you to find a way out of a difficult situation while improving your credit history. If a person takes loans several times and pays them off on time, the credit bureau receives information about the borrower’s new score, and records of successfully fulfilled obligations appear. The result will be the fact that scoring programs will miss it for large loans.
Myth 4: Taking out a payday loan will damage your credit
Each lender is obliged to transfer information about all issued loans and the timeliness of their repayment to special organizations – credit bureaus. They keep data on all loans received by clients in any credit institution. This information is requested by financial institutions when making a loan decision.
The presence of payday loans in the dossier only speaks of a person’s appeal to a lender, that is, it is one of the many factors that affect the borrower’s credit score. Depending on the circumstances, payday loans can either worsen or improve your credit history. In short, if you repay your loan in a timely manner, it could positively impact your credit. Anytime you repay loans on time, it’s a positive addition to your credit report. Alternatively, missing payments or making late payments can negatively affect your credit score.
Myth 5: Payday lenders don’t care about the borrower, they prefer a one-time profit
Payday companies are very loyal to their regular customers. This is reflected in a lower interest rate, larger loan amounts, bonuses and coupon codes. Many of the lenders often offer regular clients to take part in various kinds of promotions, for example, to get an interest-free loan.
Myth 6: If you take out a payday loan, the debt collector comes knocking
Many payday lenders do not use the services of collection organizations and try to resolve debt issues with the help of their employees. Conscientious companies want to reach a compromise with the client in the event of missed and late payment. Such companies go for debt restructuring and lower interest rates on loans. It is easy to lose your reputation and clients if you use illegal debt collection methods. This is simply unacceptable in the face of tough competition.
Each borrower has the right to know in advance how debt collection takes place. Read your loan agreement carefully.
Let’s draw conclusions
For a responsible and conscientious person, getting a payday loan online is a convenient quick financial instrument when one can borrow a small amount for a short period. The longer you cooperate with the definite organization, the more beneficial terms and rates you could be eligible for. The most important nuance: payday loans can build or improve your credit history!
When contacting short-term lenders, a person must carefully read the contract, assess the need for borrowed money, and consider the possibility of a refund. If there is no urgent need or the amount to be returned turns out to be too large, it is better to refrain from applying for a cash advance loan so as not to end up in a debt trap.
Category: General Issues