Fact vs. Fiction: Demystify Payday Loans in 2021 :PLnearme
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More often than not, the term ‘loan’ puts a sense of fear and uncertainty in our hearts. There are a lot of myths about loans, and payday loans are no different. Today, we will dispel some of the common myths surrounding payday loans and look into the facts.
So without further adieu, let’s get started
Payday loans negatively affect my credit score.
This is a common myth that is circulating the internet. Many people are unsure how taking a loan will affect their credit score. Will it be reported that I took a loan, and as payday loan is associated with a short-term loan, will it negatively affect the overall credit score? The answer to this question is No; your payday loan will have no negative effect on your credit score. Moreover, with a bad credit score, a payday loan can improve your odds to increase your score if you can clear the outstanding loans on due time.
They are easily accessible.
This one is true. Payday loans are straightforward to apply for and get approved for. The requirements are quite straightforward. To get a loan approved, you need to be a US citizen at the age of 18 or more. And have a banking account and proof that you are employed. That’s it; you do not need any more requirements to get your loan approved. This is by far one of the most accessible loans for an average middle-class American.
Insanely high-interest rates
Many criticize payday loans for having a very high-interest rate. The calculation they show is technically correct, but it does not tell the whole story. So, what baffles many is that you have to pay a $10 – $20 interest for lending $100 as a loan. So, after a month, you owe $120. If my pocket calculations are correct, that’s like a 20% interest rate per month. They compare this with other long-term loans, and on paper, they are right. But, payday loans are designed for a different purpose altogether. It is a means of quick, easy cash that you desperately need for something urgent. You get the privilege of getting a loan approved in under an hour. And for all these conveniences, you pay a mere $10 for it.
For example, suppose your car broke, and you need emergency money to fix the car. You have no savings in hand as you have probably invested it somewhere long term. What do you do now? You take a simple, fast payday loan that you can clear from your next paycheck. You pay a small premium of $10 – 15 dollars for that. So the high interest rate that many criticize is not entirely true at all.
You can get a loan approved in under one hour.
I don’t blame you for taking this statement with a grain of salt. A loan getting approved in one hour may seem uncanny and impossible. And many Payday lenders are not even able to fulfill the claim either, and some factors have to be in your favor to get a loan approved in one hour, but it is possible.
To get a loan approved in one hour, you need to apply online. Fill in all the details and make sure your employment can be verified. That’s it; your loan will be approved and sent to your bank account within an hour.
The multiple payday loan trap
There are few instances where people take multiple loans. They cannot pay off the loan as their paycheck just doesn’t cut it, and they fall into the trap of taking multiple loans. This is a very novice move, and we always recommend it. You just cannot take a loan to pay off the interest of another loan; it just does work that way. This causes compound interests to pound up, and many people find themselves submerged in loans. The main problem we see here is that people fail to understand the use case of a payday loan. It is meant for a short-term financial situation that can be cut even from your next paycheck. You cannot take this as a long-term solution to your money problem. So, yes, due to the accessible nature of the loan, many people make the mistake of taking multiple payday loans that you must avoid as it will put your financial situation at risk. But, if you do end up taking multiple loans, fear not. PLnearme have an excellent article to get you out of your worries.
No collateral to apply for a loan.
Yes, as we discussed before, payday loans do not require you to have collateral. Again, as we mentioned several times already, it is not meant for a long-term, high amount of loan. So, you can rest assured that no lender will try to put you off and seize your property. Many people call it an unsecured loan because of it.
Let’s look into some hard facts here. The companies lending you the money as a loan are here to do business as well. They are not doing charity work. They are here to solve a specific financial problem in your life and charge a fee for that. Now, because of the easy accessibility of the loan, many people fail to understand the actual use case and fall victim to not being able to tackle their financial situation. You cannot really blame the system for that. So, to sum it up, if you are in the market for a payday loan, understand what it is designed for and assess your situation accordingly. Use a payday loan as an asset to help you out in a desperate financial problem, don’t fall into the trap of making it a liability for the rest of your life.