Payday loans, perceived as harsh, high interest loans by some, are still the most popular type of loans under unsecured loans.
The general misconceptions cause people to avoid them instead of searching for the right information.
Let’s attempt at eliminating the myths surrounding the phenomenon.
Private lenders usually offer these unsecured loans on a higher rate of interest. No doubt, payday loans have the highest interest charge on the market.
How Do Payday Loans Work?
The borrower approaches the lender. The lender runs a credit check against the borrower’s credit report. If the borrow doesn’t have a satisfactory credit history, the lender rejects the application.
If approved, the borrower proceeds to negotiate with the lender on the APR.
Payday loans usually have to be returned within a month as the name suggest, on the next payday.
The general problem here with payday loans is that the lender, an unknown person, has only a single document at his disposal to evaluate the credibility and worthiness of the borrower.
How The Credit Score Works?
Repaying all loans makes your credit score fall gradually. People wanting to boast an excellent credit score rely on payday loans as a means to do this. Hence, the lender receives credit reports of all types of borrowers ranging from good ones to outstanding ones.
Payday Loans Benefit Both
The easiest form of short-term loans available on the open market, payday loans are equally beneficial for both, the lender as well as the borrower.
Borrowing comes in handy in times of emergency or facing a crisis situation, since payday loans do not involve a lengthy procedure to secure funding. If you hold a proof of identity, are of legal age and have access to the right lender, you can apply for a payday loan straightaway to fulfil your short-term funding needs. People with a poor credit score also have a chance to avail the loan, though at a higher APR. This means that they are the easiest short-term loans available in the market.
Lending doesn’t necessarily mean that you are stuck with your money for long as mostly the repayment window is not more than a month.
Statistics show that payday loans are more convenient, hence most widely used in circulation these days to facilitate short-term funding opportunities. Over 200 payday lenders are operating in the UK alone. This is a good depiction of how well the payday and loan repayment industry has been expanding.
Common misconceptions associated with payday lending include the following:
Lenders Trap Vulnerable Borrowers
One of the most common misconceptions is that people offering payday loans make them available to anyone irrespective of the credit history or whether they already are in debt or not. Not really. The payday loans are more easily granted only because of early return timeframe and interest rates are higher compare to regular types of loans.
Interest Rates Are Exorbitant
It is a fact the payday loans normally charge a higher rate of interest than the regular types of loans in the market. However, this does not mean that are not justifiable. Since the repayment window is as short, one-month period, an interest rate of 15% barely amounts to something big.
Plus, borrowers have an added advantage – they can make use of the option of rolling over the debt if they are unable to pay. Rolling over debt means that if the borrower has not been able to earn the repayment amount within a month, he can choose to carry forward the repayment date over to the following month. Lenders won’t trouble you nor cause any inconvenience if you roll over you debt.
Hidden Agendas And Fees
One of the myths circulating about payday loans is that the reason they are so easy to gain and are so flexible when it comes to rules and regulations is that they have some kind of hidden agendas and fees. According to the law, payday lenders are required to expose all kinds of fees, interest rates, as well as rules and regulations before giving any kind of loan. This means that the borrower would know from the very start what they are getting into and what will be the total amount they would have to pay at the end of a month.
There are no indeterminable small print nor any hidden fee structure that you discover once you are trying to pay back the money you borrowed.
The general belief among borrowers is that after availing a payday loans, they will get involved in the process of trying to pay off the money each month without success.
This is quite wrong since when you have a plan of action or a set roadmap, no matter what you will still be able to repay at the next payday.
Bankruptcy can only happen if you are no longer in control of your finances.
You must remember that payday loans are simply a matter of choice. You don’t necessarily have to get them if you really think that you will not be able to repay.
The whole idea behind payday loan mechanism is one of comfort and ease without a lot of hassle having to go through lengthy forms or having to wait for an appointment. Suppose you are caught up in a scenario where you require immediate access to funds, for example an electricity surcharge has been added to your bill and you require to clear that immediately. Since, it is so such short-term and require to be settled immediately, you really don’t have time to arrange for immediate funding, a payday loan can help you figure out the solution immediately. You can worry about arranging for the alternative source later as payday loans allow you a winder in the case above.
Looking for more information on payday loans? If you want to borrow a short term loan and are looking to compare payday lenders, visit us https://paydayloans.quiddicompare.co.uk/.