Let’s be honest. Most people rarely think of payday loans as a viable lending option.
And there are a few reasons why. For starters, payday loans can have fairly high interest rates and often require repayment in one lump sum. They also are designed for certain, short-term circumstances that many people might never experience.
What also may push someone away from payday loans are the myths that have been going around. Maybe you’ve heard a few payday loan horror stories from people, or you read a few articles online about payday loans and those gave you a false sense of the payday loan process.
Although some of the payday loan worries and information you’ve accumulated may be valid, it’s important to know the truth about payday loans and put those lingering myths away for good before you or others get negatively affected by the circulation of misinformation.
Myth #1: It takes a lot of effort and time to get a payday loan
The truth — In general, the payday loan funding process can be fairly quick, especially in comparison to other loan types.
Those who take out payday loans typically receive the funding they need in about one business day. And, in terms of effort, it’s not as hard as some people may think to get a payday loan.
According to Investopedia, “the qualification and loan application process can be as fast as 15 minutes if you can quickly show you meet all of the requirements.”
The article also states the payday loan borrowers must be 18 years or older and have the following to qualify for a payday loan:
- Active checking account
- Valid identification
- Proof of income
Most borrowers also don’t have to have a credit check when applying for a payday loan, which means that those with poor or bad credit can easily obtain this type of loan.
Myth #2: Payday loans are only for people who are very broke
The Truth — As mentioned above, payday loans are designed for people who need fast funding, and that doesn’t necessarily mean only those who are broke.
Although payday loans can be useful for people who are low on money in general, they also can be used by those who are experiencing last minute or emergency-type situations.
For instance, payday loans could prove useful for people who are experiencing a family emergency and can’t afford to empty out their bank account to pay for a medical procedure with last-minute notice.
This truth can be backed up by the design of the payday loan process itself. Payday loans are designed to be paid back by the time the borrower gets their next paycheck.
Those who aren’t necessarily in the ‘broke’ category who take out payday loans for an emergency will be more confident with their repayment because they know they can pay back the loan in full the next time they get money put into their account. The risk is generally lower for these people.
Myth #3: You have to have good credit to get a payday loan
The Truth — Payday loans are different than other loans in terms of credit. In general, you do not typically need good credit to get a payday loan.
Payday loans can only sometimes affect your credit because they have such short repayment terms, and therefore, are more likely to be paid back on time.
Along with their short repayment process, payday loans can be easier to pay back in full because they provide lower loan amounts to begin with. Typically, a payday loan will provide only a few hundreds of dollars worth of funds.
Myth #4: Payday loans are nearly impossible to repay
The Truth — As mentioned above, payday loans do not provide consumers with large funds. Instead, they’re designed to provide just enough funding to get people through a financially tight event until they get their next paycheck.
Because payday loans offer a smaller amount of funding than traditional loans and they have shorter repayment terms, they can be easier to pay back than other loans.
According to the Consumer Financial Protection Bureau (CFPB), “to repay the loan, you generally write a post-dated check for the full balance, including fees, or you provide the lender with authorization to electronically debit the funds from your bank, credit union, or prepaid card account.”
It’s important to know, however, that payday loans can be a more costly option if you have to pay a lot of additional fees and costs. In general, it’s best to know what fees and costs are going to be charged before you take out a payday loan.
It’s not unheard of for payday loan lenders to charge a customer service fee, late payment fee, a loan application fee, rollover fee, verification fee, and more.
Myth #5: All payday loan lenders are scammers
The Truth — Although some payday loan lenders do charge hidden fees, lack communication, and do not operate with ethical practices in mind, it’s important to note that not all payday loan lenders are intentionally scamming average consumers.
When trying to find a legitimate payday loan lender, you can:
- Read payday loan reviews on each lender you’re interested in borrowing from.
- Conduct thorough research on the lender company. Find out if they are a licensed payday loan lender in your state and check their reputation.
- Ask your lender for information regarding payday loan fees and costs before you take out the loan. Know their loan repayment and rollover process.
- Be familiar with your state’s payday lender laws and regulations, and be familiar with the payday loan process and terminology.
Know that these are only a few things you can do to avoid payday loan scams. The more you learn about the different lenders out there and your state’s payday loan laws, the easier it’ll be to find a legitimate lender.
Important things to note
When it comes to payday loans, there are a few key things to keep in mind:
- Some states do not allow payday loan lending or have certain regulations/restrictions with payday lending within their state.
- Some lenders may charge additional fees for taking out a payday loan (i.e. late fees, rollover fees, etc.).
- It is possible for your payday loan application to get rejected.
- Payday loans may not always be your best option — make sure to consider your other options first.
The bottom line
Overall, you should know that payday loans are not for everyone. That can’t be stressed enough. And, you could say that about most loans.
For instance, although personal loans may suit more situations, that doesn’t mean they are necessarily the right option for everyone.
It’s important to keep that and the myths mentioned above in mind before you completely dismiss payday loans and continue the spread of payday loan rumors.
Additionally, it’s vital to know the in’s and out’s of the payday loan process and know all of your options before deciding to get one yourself or recommending them to people in your close network.