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Emergencies strike.
But what if an emergency strikes, and you need some extra cash to sort things before your next payday?
That’s exactly what payday loans do. But there are some common (and incorrect) myths that make people nervous about applying for them. Keep reading to find out more about getting payday loans online, and why they could be the right thing to help you in an emergency.
What Is a Payday Loan?
If you don’t have an emergency fund, payday loans could be the solution for you. They are usually relatively small, short-term loans and they’re designed to give you a little bit of extra cash before your next paycheck. They’re typically repaid within two to four weeks.
The amount that you can borrow – and whether your payday loan request will be approved – varies between states.
Before you take out a payday loan, check that your payday lender is licensed to do business in your state. You can do this with your state regulator or attorney general.
Myth 1: Payday Loans Are Only For People Who Are Poor
Payday loans are designed for an emergency situation when funds are needed quickly to cover issues or problems between paychecks. They are not intended to regularly increase income for people who might be struggling financially.
Most payday loan applicants have full time, salaried jobs. Over half of people who apply earn between $25,000 and $50,000 a year.
Lenders usually require applicants to prove that they have an income and active bank account. This means that people who are struggling financially, and so may not be able to repay their loan, are less likely to be given one.
Myth 2: It’s Difficult and Complicated To Apply For A Payday Loan
It can be quick and simple to apply for a payday loan.
Most lenders will ask you to prove that you have a current income and an active bank account. Most don’t even check your credit history when you apply for a payday loan.
Lenders are looking to see that you’ll be able to pay back the loan within a short space of time; they’re not interested in your long-term credit history.
You can easily apply for payday loans online.
Myth 3. Payday Loans Can Negatively Affect Your Credit Rating In The Future
Payday loans can actually improve your credit rating.
Make sure that you pay back your payday loan promptly, and stick to your agreement with your lender. This shows any future lenders that you will pay back the money that you owe in full, either before or by the deadline.
However, if you fail to pay your payday loan back as agreed, this could negatively affect your credit rating.
Some industry professionals have also suggested that certain short-term loans may affect you when applying for longer-term credit options, such as a mortgage. In this case, it is best to discuss with your lender, such as the mortgage provider.
Myth 4: Payday Lenders Want To Avoid Regulations
At the moment, payday lenders are regulated in 34 states. The Community Financial Services Association (CFSA) is campaigning for regulations to be extended to all 50 states.
Payday lenders have always supported regulations that protect the borrowers and lenders. They do not want to be over-regulated; they want to be able to continue doing business.
Myth 5: Payday Lenders Want You To Take Out As Many Loans As Possible
Payday lenders don’t usually work on commission. And they don’t usually try to pressure you to take out more loans than you need, or more money than you can pay back.
Payday lenders want to get the amount that they loaned to you – plus interest that you have agreed – as quickly as possible. They do not want you to default on the loan or delay the money coming back into their business.
Myth 6: Payday Lenders Charge Hidden Fees
This is not true. The Truth in Lending Act means that lenders have to be honest and upfront about their fees. They cannot hide anything.
By law, all fees are outlined in the lending agreement that a lender will sign with you. Make sure that you’ve read this fully and carefully; all of the information is in there.
Myth 7: Payday Lenders Charge Ridiculously High-Interest Rates
The payday loan interest rates that critics quote are often misleading. Payday loans are designed to be short-term, paid back within two to four weeks. They aren’t annual loans, but critics usually quote the annual interest rate.
This is not accurate. The actual interest that you build up is often much less when compared to the interest rates reported.
For everyone $100 you borrow, you’ll probably be charged between $10 and $30. A $15 fee is quite common. So, if you borrow $300 now and agree to pay it back within two weeks, you’ll have to pay back $345.
Interest rates may increase if you fail to pay back your loan by the agreed date, or by the agreed installments. This will be outlined in your lending agreement, and you should consider this before taking the loan.
Myth 8: It’s Cheaper To Just Pay Overdraft Fees
The fee for taking out a payday loan is a onetime thing. For everyone $100 you borrow, you’ll probably be charged between $10 and $30.
If you go into your overdraft, you’ll be charged each time you make a transaction. This can build up, and become much more expensive than a payday loan fee.
Myth 9: Payday Loans Are Impossible To Pay Back
You can’t be tricked or forced into getting a payday loan; you have to apply for one.
Staff members are available to discuss payday loan options with you and help you to decide if this is the right thing for you.
All of the information that you’ll need will be in the lending agreement that is drafted. Make sure that you read this carefully, and check that you’ll be able to meet your obligations.
Repay the loan on time, as explained in your lending agreement, and you won’t have to worry about being in debt.
Payday Loans Should Be A Positive Experience
Getting payday loans online can be a very positive experience, and a way to help out between paychecks. Make sure you read your lending agreement, borrow only as much as you can afford to pay back and repay your loan on time.
For more information about covering those emergencies that come up between paydays, take a look at our money-saving tips.