Every year, more than 12 million Americans take out a payday loan. Clearly, they’re a popular lending option for Americans who are short on cash and need help making it to their next payday.
Payday loans online get a bad rap in the U.S. But, are they really as bad as everyone says?
Before you decide that a payday loan is not for you, it’s important that you fully understand the facts of this type of bad credit loan.
Read on to learn more about some of the common myths surrounding fast payday loans.
1. Interest Rates are Astronomical
Ask anyone about payday loans and they’ll probably respond with some kind of comment about how the interest rates are ridiculously high.
Initially, it seems that way. After all, the average interest rate for a payday loan in the U.S. is nearly 400 percent APR.
Before you get up in arms, though, it’s important to remember that payday loans are short-term loans. They’re meant to be paid back within just a few weeks or a month at most.
In order to actually be charged 400 percent for a loan, you would have to roll it over dozens of times. That’s not the way payday loans no credit check are supposed to work.
In fact, in many cases, state law prohibits lenders from rolling over your loans, meaning that you can’t be charged an astronomical interest rate.
2. They Create a Debt Cycle
There’s also a misconception out there that payday loans trap people in a vicious “debt cycle.”
It’s true that some lenders do use questionable tactics to try and trap borrowers. That’s not true of the payday lending industry as a whole, though.
There are plenty of other reputable lenders who abide by state regulations and do their best to keep borrowers out of the cycle of debt.
Remember, too, that some states don’t allow payday loans to be rolled on over.
In these states, these laws make it literally impossible to enter into a debt cycle. Other states put limits on rollovers, which also helps to keep borrowers out of extreme debt.
3. They Exploit the Uneducated
This is another common misconception regarding payday loans instant approval.
Some people are under the impression that the only folks who take out payday loans are those who are uneducated and don’t understand how they work. This definitely isn’t the case, though.
The majority of people who borrow from payday lenders have a high school diploma, and more than half of them have attended or graduated from college.
Payday loan borrowers are not inherently uneducated or misinformed. They’re simply people who, for a multitude of reasons, may need a little extra help bridging the gap between paychecks.
4. Payday Lenders Turn Huge Profits
Some people think that payday lenders charge high interest rates and fees because they want to turn huge profits.
The reality, though, is that most commercial lenders have higher profits than payday lenders.
The average profit margin for a payday lender is just 3.57 percent. The average profit margin for a typical commercial lender is 13.04 percent.
Payday lenders have lower profit margins because the small, short-term loans that they offer are expensive to provide and maintain.
Contrary to popular belief, payday lenders definitely aren’t out there making a killing by exploiting the poor.
5. Payday Lenders are Dishonest
Because they’re associated with nefarious acts like exploiting the uneducated for profit, many people are also under the impression that payday lenders are dishonest.
Again, there’s no inherent truth to this statement. Are some payday lenders dishonest? Sure.
For the most part, though, payday lenders are just like everyone else — they’re people trying to make a living.
Payday lenders also have to abide by a strict set of regulations. They must reveal all the terms and conditions of a no credit check loan when they offer it. If not, the government could shut them down.
Payday lenders who are using questionable tactics or withholding information are not in compliance with the law, but they’re the exception, rather than the rule.
6. Payday Loans are Illegal
With the exception of just a few states — Georgia, New York, and New Jersey — payday loans are not illegal.
Every state does have different laws regarding these types of loans, though. Some states don’t allow any kind of rollovers, while others put a cap on the number of rollovers a borrower is allowed.
On the other end of the spectrum, some states have very few laws regarding payday loans. States like Alabama, Utah, Texas, and Nevada, for instance, allow high-cost payday lending and have more loopholes than other states.
It’s important to understand the laws of your state regarding payday loans and read the fine print, but these loans are perfectly legal just about everywhere in the country.
7. People Who Use Payday Loans are Bad with Money
In the same way that there is a lot of stigma surrounding payday lenders, there is also a lot of stigma surrounding people who borrow from payday lenders.
Many people look down on payday loan borrowers and assume that they’re bad with money or are using the loan to make frivolous purchases.
Some people may use payday loans in an irresponsible way, but most people who turn to them do so because they’re the best option available.
For example, maybe they need money right away to pay for a medical emergency and don’t have time to wait to get approved for a personal loan.
There are plenty of reasons why someone might take out a payday loan, and they definitely don’t all have to do with being bad with money.
Apply for Fast Payday Loans Today
Clearly, there are a lot of myths out there regarding fast payday loans.
Can payday loans be misused and created debt issues for some people? Absolutely. That doesn’t mean that has to be the case, though.
Payday loans can also be used to get you through a tight spot and help you get on track toward financial freedom, and can provide much more flexibility than a long term installment loan.
If you’re interested in taking out a payday loan, apply online with us at Bonsai Finance today. We make it easy for you to apply and qualify for a loan of anywhere from $500 to $5,000! Here are some other articles you might find helpful: