Payday Loans: The 5 Top Myths To Destroy
Some untrustworthy sources have spread false opinions about payday loans. In reality, alternative lenders providing payday loans have helped borrowers across the country, and borrowers only benefit from this collaboration.
In order to know how to responsibly borrow and get the most out of payday loans for your financial independence, you need to know the real facts about these loan options. Here are the top 5 myths about payday loans proven wrong.
1) Payday loans are only for financially troubled borrowers
It is true that borrowers with poor or no creditworthiness would get a loan from an alternative lender online faster than a loan from the regular bank. But other borrowers with a well-managed budget and financially stable position also benefit from payday loans.
The truth is, if a person suddenly has an emergency, medical or other emergency, they’d rather turn to alternative lenders than wait weeks for approval from a credit union or bank.
Online lenders are more flexible about credit checks or high income requirements. For example, e-transfer payday loan Canada Take only one day to process the loan application and issue the loan. Plus, online creditors really help out in those situations where a financial urgency arises before the paycheck arrives.
2) Payday loans always come with high interest rates
If you’ve seen ads from websites that charge 0% interest on loans, you can’t trust them. Lenders charge interest, but they only pay for the service they provide to their customers. Nobody does their work for free. And the interest that is charged on a payday loan is comparatively lower than that of a normal bank.
Most alternative lenders do not have an origination fee. Some have also waived the additional prepayment fees. You can even apply for a deferred payment if you find yourself in financial distress.
However, if you miss a payment or are late, you will face the consequences.
3) Payday lenders have additional fees
Those unfamiliar with the Truth in Lending Act can spread this disinformation. The law clearly states that the lender must be truthful about all fees and charges that are waived or may arise at the end of the loan term.
The document, which can provide comprehensive information on fees and ancillary costs in individual cases, is signed by both the lender and the borrower. Thus, the lender gives the legal reason for the fees, interest, and additional fees, and the borrower either agrees or disagrees.
Apart from the interest rate that is calculated on the loan and displayed in advance, other additional payments can be made from:
- Late payments;
- Missed payments;
- Credit default on behalf of the borrower;
- Prepayment of the loan (if mentioned in the loan agreement).
In either case, the borrower needs to read the loan agreement thoroughly to understand all of the financial implications of the loan process.
4) Only borrowers with good or excellent credit ratings can take out loans
The misunderstanding arose from the frequent refusals of credit to people with poor or no creditworthiness at banks. In fact, borrowers who have not taken out a loan before can always have a second chance. They can successfully get loans and if the lender reports their credit history as good they can even improve their credit rating.
It is a known fact that online lenders only perform gentle credit checks. Borrowers with all types of credit can apply for loans when they are ready to repay them. There is the possibility pre-qualify for a loanwhere you can enter the loan amount you want, your creditworthiness and see what interest rate you are looking at. The prequalification does not affect the creditworthiness in any way, ie does not worsen it.
The other aspects online lenders may see differently are the borrower’s income size and source of income. Borrowers who have a low income or who cannot raise the source of income (e.g. being paid by a foreign company) can also apply for loans and discuss the loan terms directly with the lenders.
After all, the interest rate depends directly on the creditworthiness. This means that borrowers with better credit scores could qualify for lower interest rates and those with poor credit scores could qualify for a higher one. But the ability to get a payday loan with a low credit score is still a plus for working with online lenders.
5) It is more lucrative to pay the overdraft fee
The overdraft fee is what you pay the bank when you withdraw an amount of money that is greater than what is left in the bank account. With this in mind, some think that covering this amount is cheaper than paying the interest on the payday loan.
The thing is, the interest rate is a one-time payment that is charged for every $ 100 that the borrower receives, while the overdraft fees are charged every time you withdraw the money from the bank. It can range from $ 30 to $ 54 per overdraft.
In addition, bank customers often do not notice any overdraft fees. The bank does not have to notify the customer every time. Payday lenders, on the other hand, show their fees openly in the loan agreement from day one. Consequently, applying for a payday loan is much more cost effective than borrowing from a bank.
All of these false statements about payday loans are made due to the lack of knowledge about these financial transactions. Payday loans are a great tool to bridge the gap in the budget when it falls apart or to help with a money shortage that needs to be addressed immediately. When you know all the facts about payday loans and know your options and obligations in front of the lender, you can safely apply for loans to avoid late payments and additional fees. Borrow responsibly.