The media hasn’t been kind to payday loans. Even the term, “payday loan”, has something of a negative connotation attached to it. Many people think payday loans are unregulated, that their interest rates are unmanageable and that they’re bad news because companies are unreasonable about repayment. In sh jiort, payday loans are still frowned on by the mainstream media and have been lumbered with a bad reputation.
This is a shame, because payday loans are – in theory – no different to regular loans when it comes to fairness and regulation. Short-term injections of cash are a great idea for many people, which is why the negative reputation garnered by payday loans in the press is disadvantageous; many people simply won’t consider this option when, in actuality, it would be great for them. Here are 5 common misconceptions about payday loans, as well as the truth behind them.
- Payday lenders are all the same
There are many people out there who think that all payday lenders are the same: shady, underhanded companies who’ll do anything to shill their customers for a quick buck. This is, to say the least, patently untrue. Sure, there are payday loan companies out there who are unethical and unscrupulous in this regard, but the same could be said for literally any industry one cares to mention, including non-payday loans. There are plenty of reputable, friendly and trustworthy payday loan companies out there if one knows where to look. Dishonest lenders won’t be upfront about the interest rates on their loans, and they’ll likely push you to take the loan whether you feel like you’re ready for it or not. Legitimate and honest lenders will discuss your options and financial situation with you beforehand, making sure you’ve got a complete handle on the situation before you proceed. Make sure you know the difference and you can’t go wrong.
- Payday loans should only be used in emergencies
It’s an easy trap to fall into: payday is coming, and you just can’t make that mortgage payment without a little financial aid. In this circumstance, you might be tempted to reach for the nearest payday loan company’s number, but think twice; payday loans actually shouldn’t be used for ongoing expenses and long-term financial debt. In fact, payday loans are a great option for those who are looking for a quick cash injection just before payday for less pressing matters. Let’s say your child needs a new laptop for a school project. You know you won’t have the money until payday, but when payday rolls around you’re one hundred percent sure you can pay the loan off plus any interest accrued. This would be an excellent time to take out a payday loan. Examine your finances closely – if you find you’re using payday loans for everyday expenses or to bail you out of other debts, there’s something wrong.
- Payday loan lenders are predatory
Again, if you opt for the wrong lender, then they can exhibit predatory tendencies just like any other business. The worst payday lenders are actively misleading, aggressive when it comes to repayment and uncaring about your personal circumstances. The best payday lenders, however, couldn’t be further from this paradigm; they’ll listen and advise when you’re struggling with repayment, they’ll fully explain everything that you need to know before you even take out a loan and they’ll always be there to advise you during every stage of the process. It’s not fair to say “payday loan lenders are predatory” any more than it would be fair to say “travel agents are predatory”; it’s all a matter of where you go.
- Payday loan lenders unfairly target vulnerable parties
In the UK, the Financial Conduct Authority is now responsible for regulating payday loans. Back in 2014, the FCA introduced rules which placed price caps on short-term loans such as payday loans, so even if companies wanted to fleece customers looking for an honest way to quickly borrow cash, this would be much, much harder to achieve under these guidelines. Payday lenders have a lot of responsibility in terms of how they choose their customers; companies must provide exhaustive information regarding managing debt and when to opt for their services, while some companies actually provide information about alternatives to payday loans, so customers are one hundred percent sure of what they’re getting themselves into.
- Payday loans cause huge debt
This misconception has a lot to do with finance management and a little to do with the companies involved. Again, as with all of our previous points, it’s worth bearing in mind that predatory and unscrupulous companies will probably pile on the debt if you fail to make a repayment; that’s why they’re predatory and unscrupulous. Using online trust sites such as TrustPilot should make the process of choosing which lender to opt for much easier. Due to the fact that payday loan companies are now much more selective with their lending criteria, the kind of people who are vulnerable to long-term debt simply don’t get approved for payday loans any more. Loan companies must work with borrowers to create fair, manageable repayment plans, and must direct struggling customers to government resources regarding debt management. All in all, the payday loan landscape is a far fairer, kinder place than many would have you believe.
