To get a payday loan or not – this is a question that tones of people mull over every day. Many, although they could use the help, decide not to obtain a pay day loan because payday loans are often criticized for many issues that are actually misconceptions. Let’s take a look at the top five misunderstandings about pay day loans.
- High Interest Rates – While the interest rates may appear high at first glance, this tends to be one of the largest misunderstandings in the industry today. Often times potential borrowers stop at the door because the interest rate on payday loans which tends to be 15%-30% of the loan is, when converted to APR, is a whopping 450%+. The actual interest rate for a payday loan is around 15%-30% for the term of the loan. Sometimes the numbers can make borrowers think it’s very expensive to obtain a payday loan which it really is not. The loan term or the repayment time is responsible for changing the APR. If you know the fees, often $15 to $30 per $100 borrowed, the only variable is the terms. If one borrows $200, the fees can be double that $15 to $30 but that doesn’t change the ratio when you take in those numbers into the formula. So while those who oppose the use of pay day loans use the APR to frighten borrowers, if you break it down, the fees are workable.
- Credit requirements – Amazingly there are still a large number of people out there (an estimated 95% of folks) who believe a borrower has to have excellent credit for short term loans. The truth is that pay day/short term loans offer help to both individuals with good and bad credit. Many lenders of short term loans do not perform credit checks.
- It will ding my credit rating – Another fear of consumers revolves around the myth that an online pay day loan application will affect their credit report. This is simply untrue. Since a credit check is not performed for most applications there is no report to credit agencies local or otherwise.
- The application process is difficult – A personal loan application is usually a simple thirty second application. There are no complex paper work requirements at all. This is vastly different than if you went into a regular bank for even a small term loan. Short term loans are primarily offered on the basis of payroll and employment records so there aren’t many documentation requirements.
- But what about the lenders reputation – Today many top lenders offer low interest payday loans. There is no argument that there are some questionable lenders in the general marketplace most loan vendors are reputable and pre-screen all their lenders to ensure only the best lenders work with their borrowers.
These are just the top five misunderstandings in terms of short term lenders; there are others but the bottom line is that pay day/short term loans don’t have to be a scary thing when you need there.