latest technology inventions: Payday Loan Myths

Payday Loan Myths

By uncritically accepting the myths about payday loans, you might be unwittingly depriving yourself of an opportunity to get money fast when you really need it. This article is therefore going to attempt to dispel some of these myths so that you can have a better idea of what they are really about so you can decide if they?re useful in your situation.

How Do Pay Day Loans Work?

Pay day loans function in a very simple way. You get money fast, and then you pay it back when you are next paid. It?s as simple as that. The only thing a payday lender has to know in order to make the loan is that you earn enough in a month, from a permanent job, to be able to afford the loan.

There are a couple of other things that have to be considered, but these are really just technical details. For example, you?ll need to have a bank account so they can transfer the money in, and then out again when the payment is due. You also have to be at least 18.

No Credit Checks

The reason that payday lenders do not perform credit checks is often misunderstood. In fact there is a myth that they so so in order to trap people who are not really credit worthy into getting lots of backed up interest charges. In reality though, a payday lender wouldn?t last long if none of their customers paid back their loans on time.

The reason that this view is usually held is because when banks and other long term lenders check credit histories, that is taken as a sign that they are being responsible. Really though, they do it because they are going to have to make a loan which will partly be based on the borrower?s income in a year or more, which of course nobody knows. A credit check just lets them make a better guess.

It is also a good selling point for payday lenders of course. Not only because it opens up the market to everyone regardless of their credit history, but also because it makes the application process faster. This is essential for an emergency loan when the money is needed quickly.

Loan Sharking?

One of the most ridiculous claims is that payday lenders are preying on poor people. One of the reasons this is so absurd is that these are people who seek out loans, so they obviously need them. A payday lender is therefore providing a service which people need, which is not the act of a predator at all.

This is not to say, of course, that it is not poor people who predominantly use payday finance. That?s only because they are the ones who get in to emergency financial situations, such as having unpaid bills that could lead to the loss of a utility for instance. Rich people don?t have to worry about that sort of thing, so they don?t need short term emergency loans of this type.

Interest Rates

Borrowers always want lower interest rates, in fact they would prefer if there was no interest payable at all. However that is not a viable business model for payday lenders, they have to charge interest to make money. In comparison to other loans, pay day loans are not actually high though.

Of course if your only mode of comparison is the APR then of course a payday loan, which lasts for a lot less time than the annual percentage rate measures, will seem more expensive. If you actually look at the amount of interest you?re expected to pay overall though, it will be about the same for pay day and normal bank loans.

To find more ideas regarding ways to make use of payday finance visit the site where author Christian Beddoe regularly is found writing, Payday Loans.