It seems like every solution to people’s problems will inevitably have its critics. Payday loans are short-term loans that anyone with a verifiable job can get.
When you run into financial problems and payday is still days away, then this is an option that could pay your hospital bills or get your car repaired.
Before people dismiss this kind of financing as a viable solution to their challenges, they should take the time to separate myth from fact.
1. Payday Loan Interest Rates Are Too High
When people talk about the interest rates on Arizona payday loans, they are referring to the APR. This is an interest rate that is extrapolated over the course of a year. A payday loan is a short-term solution that charges fees that get translated into interest rates.
For example, if a company charges a $15 fee for every $100 borrowed, then that equates to a 391 percent APR. However, if a credit card company charges a late fee of $37 per month on past due payments, then that equates to a 965 percent APR. When taken in context, payday loan rates are not unreasonable.
2. A Targeted Audience
Even though payday loan companies do not restrict their services to any one type of customer, critics argue that these kinds of short-term loans, with no credit check, take advantage of people who are financially struggling. The truth is that the majority of payday loan customers make a median income of $25,000 to $50,000 per year.
3. Operating Outside Government Guidelines
Because people misunderstand how payday loan interest rates are calculated, they assume that interest rates that high must be on loans that do not follow government regulations. All payday lenders are obliged to follow state and federal lending laws. Any reputable lender would insist that borrowers only do business with companies that follow the law.
4. Phantom Need
One of the most common myths about payday loans is that their marketing tactics work on people’s emotions and create a need that does not actually exist. In an ideal world, every person has a savings account and the resources to pay unexpected bills that come up a week or more before payday.
The reality is that emergency situations happen and many people are unable to sustain a savings account to cover those immediate needs. Payday loan customers seek out the lenders to help in these instances, not vice versa.
5. Hidden Fees and Conditions
There is a persistent myth that payday lenders add fees and change the terms of loans after the loan has been granted. Because payday loans are regulated by state and federal laws, all fees and conditions are revealed to the borrower before the deal is signed. Any ongoing late fees or interest is done as per the agreement. The lender cannot make-up fees or add conditions to the loan once it is executed.
Before you disregard a payday loan to help you out of your financial situation, you should learn the facts. You will find that this kind of lending is a responsible option.
4. Payday loans image courtsey Scurzuzu via Flickr
This is a guest post by Shaun Chatman
Shaun is a well published author on many authority sites. He lives in Dunedin, FL, and spends his free time playing with his kids or advising friends on gadgets, travel and loans.