New to Payday Loans? Don’t Believe These Myths
You have a conditional week left before your paycheck, and you needed the money yesterday. You couldn’t save for a rainy day; your friends can’t help you out. The question arises — what to do?
- Determine whether your situation is really so critical that its solutions need to borrow money.
- Assess your capabilities: money borrowed, need to pay back, and even with interest. Can you repay on time without causing serious harm to your future budget?
So, you do need money, and you are thinking about taking out a loan. This is a common and uncomplicated way to solve temporary financial problems. Payday loans can help in this situation.
But where can you start exploiting them? You can use apps for instant money, as it is extremely convenient — no need to move around the city, and you can get money from the comfort of your home.
What Is Payday Loan and How It Works
This is the name given to a small short-term unsecured loan provided by microfinance institutions. These organizations disburse payday loans around the clock. The main difference between a microloan and a regular one is in the registration procedure:
- Here you can get a loan without guarantors, income certificate, collateral, official employment, and deposit.
- Of the documents, you will need only a passport and TIN.
- MFIs also lend fast: if you enter all the data correctly in the questionnaire, the money on the card can come within an hour. Such an option is suitable for those who need money before payday urgently.
- To take microcredit, you need to fill out a small form, provide your passport, TIN, and contact information. The decision on the loan is taken very quickly. Anyone from 18 to 65 years old can take microcredit.
That is, such a type of money receipt is much faster and more convenient than the usual way.
What to pay attention to when taking a loan from an MFI?
- Take advantage of promotions. Many MFIs, hoping to get a loyal client, give the first loan at a very small interest rate per day. Also, organizations often conduct promotions and seasonal discounts.
- Read the agreement carefully. It may contain some nuances that will not be written about on the website.
- Calculate the date of payment. Even one day overdue will affect your credit history. And that’s not the worst part: some MFIs may charge you a penalty of up to 2% of the entire loan for each day you fail to pay.
In What Cases Payday Loan is a Choice
The simplicity and speed of the microloan can partially sweeten the pill of high-interest rates:
- Micro credits are mainly taken when money is needed right now: “money till payday,” money to buy appliances or furniture, for medical treatment, or holidays.
- It is also possible to take microcredits if the bank refuses to give a loan, for example, because of a bad credit rating.
- MFIs were once created to support small businesses that could not always rely on financing from banks. But among ordinary people, fast loan services have also become in demand, so MFIs also provide consumer loans (including payday loans).
- If the deadline is tight and you have no money, the client can try to prolong the loan. Deferment of repayment is better to be done before the appearance of high-interest rates. It is also possible to refinance — a second loan to pay off the previous debt.
By the way, a microloan can improve your credit history if you take it for a short period and don’t default on payments.
Statistics show that 12 million Americans exploit payday loans annually. One average consumer of payday loans is in arrears for five months a year. Their average borrowing amount is $375.
7 out of 10 people who utilize payday loans are taking them to cover regular expenditures, such as utility bills and rent. The average payday loan borrower’s income is $30,000 a year.
Myths About Payday Loans
Many people are concerned about taking out such loans because of frequent myths. Let us dispel them!
Myth #1: Payday Loans Trap People in a “Cycle of Debt”
Many people believe that people are tricked into taking out payday loans, and they fall into a debt loop because they can’t pay it back. However, respectable lenders test a consumer’s repayment ability before they approve an application.
Borrowers tend to pay off short-term loans in a timely manner, generally on the following payday. They pay interest only for the actual term of the loan if they repay it before the due date.
Myth #2: Interest on Payday Loans Is Unethically High
Lenders can’t survive if borrowers don’t pay, so they have to charge more for the service to stay profitable. Research several lenders and find out what their fees and interest rates are.
Make sure you know when you can pay off the loan and fees and calculate the risk. If you have a high credit score, you can expect better terms.
Myth #3: Payday Loans Are for Poor, Uneducated People with Bad Credit
Inequitable lenders might unjustly focus on a particular demographic group or on some vulnerable individuals.
But solid lenders don’t act that way, and the people who gain the most from payday loans are members of the middle class who have steady jobs.
They utilize payday loans to cope with unforeseen expenditures and emergencies.
Myth #4: Payday Loans Come with Concealed Fees and Terms
A common belief is that lenders add commissions and modify the original terms of loans after they are issued. They don’t. Most people believe this because too many people initially review all the terms and conditions when applying for a loan.
The payday loan industries are strictly controlled. All lenders are required to report all fees and conditions in advance, so they cannot add any changes after the loan is received.
Myth #5: Payday Loans Are Only Beneficial to Lenders
Against popular opinion, borrowers benefit most from same-day loans simply because it’s easy to obtain when you really need money.
These loans do not require a waiting time like regular loans. Likewise, they do not require a deposit or credit check.
All of these features are advantageous to borrowers. The lenders benefit only from the percentage the borrower repays, which is minimal if the consumer pays it on time or in advance.
Now you understand the subject of payday loans, refute common myths, and are no longer afraid to make microloans. Good luck getting a payday loan!
Do Payday Loans Deserve Their Bad Reputation? Ask the People Who Know Best – the Borrowers