Three Common Myths about Payday Loans
A payday loan can be a powerful financial tool when used correctly. However, in the wrong hands or the hands of a borrower will little knowledge; they can be a powerful tool that leads to financial ruin. Understanding the ins and outs of payday advance loans, as well as what is true and what is not, can help ensure that your loan builds up and strengthens your finances rather than make them worse. The following myths are common in the payday loan world, and each one should be debunked in an effort to better inform borrowers.
Anyone Can Get a Payday Loan
While it is true that payday loans are available to a much broader customer base than many other types of loans, they are not just handing money to anyone off the street. Contrary to popular belief, there are some eligibility requirements, though they are few and relatively easy to meet. First, borrowers must be of legal age or accompanied by a legal parent or guardian. Kids cannot just walk in and get a handful of cash. Second, you must be employed. This is how the loan gets repaid. The next paycheck after the loan is promised as payment for the loan, thus and unemployed person is not eligible by default. This means that of all the things a payday loan can help with, getting you through unemployment until you find a job is not one of them.
The Payday Lending Cycle is a Vicious Trap
While this myth could have some merit, the fact is that there is no trap if borrowers understand all of the terms and use the funds properly. The loan does have to be paid by with the next check, and most often the funds for payment are drafted from the borrower’s bank account by the lender. The part that gets some uninformed borrowers in trouble is that they do not realize they have to use these funds to pay the loan back or suffer multiple late fees. Late payments on any loan incur late fees, but these loans are short term by nature and generally paid back in a lump sum. If the paycheck is going to be needed to cover regular expenses, discuss repayment terms with the lender. If there is any flexibility available in the way of breaking down repayment into smaller payments, they can work with you. Also, use the time the funds from the loan give you to handle the immediate need, and then look for other ways to raise the money for the repayment. Options included a temporary side job or selling items.
A Payday Loan Will Ruin Your Finances
While improper use of a payday loan could ruin your finances, the same as the improper use of any type of credit or financing could, it doesn’t have to. In fact, it could actually improve your credit and help your finances. Since many payday lenders do not do a credit check, those with poor credit could use these types of loans to rebuild credit by paying them back on time. It is all in how responsible and informed the borrower is.
These are some of the biggest myths associated with payday loans. While they each have some minor basis in truth, there is so much more to the story than many ever see. Like any other loan, payday advance loans are not perfect, but they can be very useful if handled in a responsible, informed manner.