Payday Loan: Myths and Reality

There are a lot of myths and misconceptions prevalent among people about the payday loans and the payday loan industry. Such people are usually belonging to the hardworking group with incomes conforming to the middle class segment. Besides, almost half of such persons own their own houses. Advertising is considered to hold a lot of responsibility regarding the prevalence of such myths.

A widely held misperception is that the payday lenders are on the lookout of taking advantage of people. The truth is that they render valuable services to millions lacking in exclusive financial alternatives to turn to during emergencies.

People believe that the payday loans must be for sub prime customers. They feel that the loans must be for people who have been refused credit elsewhere. This is a wrong notion. The payday loans are actually aimed for prime or near on prime customers. Such customers usually possess an above par credit rating. Customers taking payday loans are generally credit worthy and certainly have the ability to repay the loan. The payday loans are set up to merely satisfy a credit need different from other established forms of borrowing. The payday loans offer a host of benefits- there are no application fees, no credit check and no hassle of check bounce involved. So, avoiding the payday loans will imply avoiding of reaping these benefits.

Another misconception about the payday loans is regarding the Annual Percentage Rate (APR) quoted for a payday loan. This seems to be very high and can thus dissuade consumers from applying. In actual fact this rate will not be too much taxing on the customer considering that it will only be applicable for a short time duration by which the loan will be repaid (upon receipt of pay check).

Yet another myth is that the payday loans are a last resort. Though it is true that these loans are opted for in order to meet cash advance to cover some emergency need yet it is equally true that a significant number of Payday loan customers borrow the loans for meeting the little extra cash requirement for funding holidays, weddings etc. So, this is not always a last resort.

It is unfortunate that many people fail to understand the payday loan industry properly and hence hesitate to opt for these useful products. There is also the doubt and misconception thriving concerning the people who patronize the money lending establishments providing payday loans which leads people to become wary and remain aloof from opting for such loans.