Payday loans are infamous. Everyone knows them, but there are still a lot of misconceptions about them. They are generally considered a bad choice for your savings and for your credit report. But, with new technologies, a wide variety of lenders, and the ability to take out short-term loans quickly, today’s common misconceptions couldn’t be further than the truth.
Payday loans are now a type of short term loan. You can withdraw them on a very short basis, where you pay them back right after you get paid, or you can spread the payment over two to 12 months. In fact, the new short-term loan alternative to the old-fashioned payday loan is often the best option, as you can pay off your debt without pinching pennies or scratching until the next month, giving you a lot more opportunity. stable. to rebuild your safety net and 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 short term loans, compare payday loans online, and choose the best lender and the best loan deal means that you can get the loan you need at a great price. rates.
You will of course pay back more than what you take out, but that’s true for every loan. There is a reason that creditors have an incentive to lend money in the first place, and that is with interest rates. When you have a good score, you can get the money you need for very little interest rate, especially if you have the option to prepay everything.
2. Payday loans are only beneficial for the lender
Payday loans are good for the lender, but that doesn’t mean they aren’t good for the borrower. They are there specifically when you cannot afford your unexpected costs in other ways. This may be because you need multiple paychecks to cover the cost because you have reached the credit limit on your credit card.
By taking out a short-term loan, whether it’s to pay it off on payday or slowly over several months, you can better manage your finances and absorb the high cost of your unexpected bill or repair.
3. Payday loans always have hidden fees and conditions
It is legally impossible for payday loans to have any hidden fees or conditions or for those conditions to change after signing the agreement. It is, however, crucial that you read the terms and conditions of your loan carefully before agreeing and signing anything. The lending industry is highly regulated and strives to protect consumers from the unscrupulous and even illegal activities of lenders. It’s up to you from there to make sure you read and understand the agreement you are signing.
4. Payday loans are only for people with serious financial problems
You don’t have to be between a rock and a hard place to take out a payday loan. In fact, he can be very responsible to take out such a short term loan. The rest of your expenses don’t just disappear when you have to deal with an unforeseen and significant cost or repair. 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 manage this new cost is to spread out repayments with a short-term loan, so that you can continue to repay with confidence without feeling the pressure or going through drastic measures.
5. Payday lenders use threats or force when collecting dues
Payday lenders are highly regulated and use the same methods to collect missed, late, or missing payments as banks. These are fair and legal methods used to encourage refunds. In extreme situations, however, your loan may be sold to a debt collector, who again will follow legal rules and regulations when it comes to collecting the money you owe.
If you feel like you are being coerced or threatened, it is imperative that you follow this The Balance Small Business guide to report the lender and their behavior to the Better Business Bureau. If their behavior goes beyond the legal framework available to them, then you have legal protections.
6. You better not take the payday loan
In this misconception, the assumption is that you can ignore the cost or the bill until you get your paycheck. While this can sometimes be an option, be aware that you can only do this with a written agreement from the company or 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 work with a little mom-and-pop mechanic to get your vehicle repaired and make a deal to pay your bill on your payday in exchange for keeping your vehicle as collateral, then you can avoid the payday loan. . Alternatively, it might be best to take out a loan from a friend or family member if they have the money and are happy to help.
Most, however, won’t have this option, especially if you need a replacement or pay some sort of fine. In these cases, it will always be better to take out a payday loan, or better yet, a short-term loan, to pay off your initial bill and then distribute the costs in a way that works within your budget.
7. Taking payday loans will hurt my credit rating
It’s easy to see how this myth started. After all, you usually only take out a payday loan when you don’t have the cash on hand for your next payday. It can be seen as mismanagement of money by lenders and therefore taking out this payday loan can actually hurt your credit score, right? False. In fact, leaving payments or bills unpaid can hurt your credit score, so be sure to pay off any loan you take out.