Finding accurate information about payday loans can be difficult. Opponents from the banking and finance industry have clouded the internet with false information leading to confusion and lack of trust. In reality, a payday loan is just like every other loan. Before turning to a to it for relief, one must simply know how they work and what to look for.
What are Payday Loans and How do they Work?
Imagine borrowing money from a friend but writing them a check to be cashed on a future date. A payday loan operates under the same concept. Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash. Nowadays, physical checks are uncommon. Hence, borrowers sign over electronic access to their bank accounts for repayment of the loan. Lenders hold the checks until the borrower’s next payday when loans and the finance charge must be paid in one lump sum. To pay a loan, borrowers can redeem the check by paying the loan with cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period.
Common Misconceptions about Payday Loans:
– Payday lenders are dishonest when it comes to fees and terms:
The Truth in Lending Act makes it mandatory for lenders to provide up-front, full disclosure. In addition, the CFSA Best Practices and Consumer Bill of Rights require all CFSA approved payday lenders put consumer education and empowerment first. Just like every other loan when you need a payday loan, it’s important to read all the fine print and to make sure that the lender is legitimate.
– It costs less to pay overdraft fees than to choose a payday loan:
Payday loans are much less expensive than overdraft fees. Overdraft and late fees are applied to your credit card or bank account without a legitimate warning. This will lead you to a horrible surprise when you check your bank statement. A payday loan clearly states your rate, which is a one-time flat fee before you sign.
Furthermore, the fee is usually around $15. In comparison to an overdraft fee or credit card fee which are usually over $30, this is quite the bargain. Under the assumption that one is a responsible borrower, a payday loan is a smarter alternative.
– Payday lenders charge extremely high rates to make huge profits and take advantage of people:
This is a flat out lies about the payday industry created by big banking. When compared to alternative lending substitutes, payday lenders are considerably less profitable. Small, short-term loans are expensive to compensate for higher demand. The average profit margin for a payday loan only stores is only 3.57%, meanwhile, for commercial lenders, it’s about 13.04%.
– Payday Lenders prey on those deep in debt or have bad credit:
Payday lenders do not take advantage of those deep in debt. More accurately, the reciprocal is true. Those with bad credit, try to take advantage of payday loans. If one is a responsible borrower, payday loans are a much better option. However, due to the flexibility and credit score requirements, payday loans by nature attract a higher rate of irresponsible borrowers than that of traditional loans.
– Payday lenders charge hidden fees:
On top of being false, this is illegal. The Truth in Lending Act makes it mandatory for lenders by law to be upfront and forthcoming with their fees. Hence, fees must be outlined in the lending agreement. Usually, there will only be one flat fee – and no hidden fees or additional interest. Many lenders allow customers to remove the fee for timely payment. Similar to other types of loans, a high percentage of borrowers do not read the loan agreement carefully.
In conclusion, it is safe to say that if one is a responsible borrower, a payday loan is a low-risk option with a safety net if one were to default. At Federal Advance we take pride in offering great financial products from our network of quality lenders. We increase your chances of being approved by presenting your information to an entire network of providers. We use 2048-bit encryption SSL to prevent any unwanted disclosure of your personal information.