People have always avoided payday loans because of the many misconceptions surrounding them. These mistaken beliefs prevent people from opting for this type of loan, even though they are in dire financial situations.
It would be best to never let misconceptions stop you from getting financial help in your time of need. This article will help you better understand how a payday loan works by debunking some of its most common misconceptions:
You Must Have A Good Credit Score
Some borrowers believe they must have a good credit score to be eligible for a payday loan. But the truth is, most lenders offering this type of loan don’t need people to have any credit history. This makes payday loans an ideal source of emergency funds for people who have not even started building up a credit history yet.
Payday loans are short-term instant loans that only need you to submit a few requirements to become eligible. What most lenders will require from you is proof of income and work history. Once your application is approved and you get the money, you must repay the loan with your next paycheck.
They Have Hidden Fees
Many people believe that payday loans come with a lot of hidden fees. This used to be true back in the day since unscrupulous lenders took advantage of the lack of regulations before. Today, however, lenders are required by the law to be transparent regarding all types of loan transactions.
You’re mistaken if you think lenders use payday loans to rip you off. It’s legally impossible for them to charge you hidden fees after you sign the loan agreement. However, it is still advisable for you to read the terms and conditions of the payday loan before signing.
Governments have implemented some stringent regulations when it comes to these loans. This is to protect consumers from unscrupulous lenders. Make sure you understand your loan’s terms before you agree and sign it.
It Comes With High-Interest Rates
This is another common misconception about payday loans. However, it’s not necessarily true. Generally, payday loans have interest rates far lower than the ones you get from banks. Also, most lenders don’t have a processing fee. Some of them even remove penalties for pre-paying loans. And they can give you an extension if you’re late with your payment. But if you miss your due dates, you will most likely face repercussions by then.
Finding A Lender Can Be Tough
Since payday loans are not always talked about, many people assume that only a few lenders offer them. As a result, potential borrowers give up on it without a second thought, even though they need emergency funds.
The truth is, finding a lender nowadays is more accessible with the help of the Internet. You should be able to find multiple websites offering payday loans when you type in the right keywords in a search engine.
Be careful in choosing a lender, though, as you might end up borrowing money from an illegitimate one. As usual, check the reviews from previous and current borrowers to determine whether the lender is credible and trustworthy.
Lenders Will Harass You To Collect Payment
This is a serious misconception surrounding payday loans. Governments highly regulate lenders offering this type of loan, and they are required to use appropriate and legal methods of asking borrowers to repay the money they owe. They use the same collection methods for missed or late payments as banks do. If you feel like your lender is threatening or coercing you to repay, you should report them to the proper authorities.
It Can Damage Your Credit History
All lenders are obliged to submit loan information to credit bureaus. This is where all data from borrowers are gathered in one place. Financial institutions rely on this data when deciding whether to approve a particular borrower.
Payday loans can make you look good or bad in the eyes of financial institutions. If you repay the payday loan on time, it can improve your credit score. But if you are late in making payments, it’ll surely damage your credit history. Letting scheduled payments go unpaid can hurt your credit score, so always pay the loan on time.
Final Thoughts
Payday loans are incredibly beneficial as they provide quick financial relief, especially in emergencies. Misconceptions about this loan prevent many people from seeing it as a viable option. If you have doubts, feel free to ask your lender questions to clarify everything before applying for a payday loan. Once approved, be a responsible borrower to easily avail of another loan next time.
