There are a lot of misconceptions about how a short term loan works and what a payday loan rate is. Unfortunately, misinformation keeps some people who could benefit from this type of loan from seeking one. Myths about high interest rates, exorbitant fees for late payment and collection methods combine to make many people fearful of using this legitimate financial tool when they need help.
Misconception 1: Interest rates on short term loans are extraordinarily high.
Reality: Just like any other loan, cash advance loans (as they are often called) are paid for through interest rates. You will know your payday loan rate before you accept the loan. If the rate is too high, don’t take the loan. Some lenders charge a higher rate than is necessary and you should not deal with them. Instead, go to a reputable lender whose rates are competitive.
Misconception 2: The total cost of the loan balloons to exorbitant amounts if you don’t pay on time.
Reality: The fact is any lending institution will charge you an added fee if you fail to repay your loan on time. Banks do it. Credit card companies do it. And, yes, short term loan lenders do it. Whether or not the amount of the fee is too high depends on the lender. Again, do not do business with a lender whose fees are out of line. Be sure you understand what those fees will be before you accept the loan.
Misconception 3: Short term lenders resort to strong arm tactics if you fail to repay your loan.
Reality: Legitimate lenders do not harass or threaten their customers. They have every right to be repaid for the loan they have granted and to use all legal means to collect their money. Many of them will offer extended terms if you ask. Don’t be shy about asking questions.
Many people erroneously believe that all payday lenders are crooks and shysters and they gouge their customers through a very high payday loan rate. In fact, the short term loan industry is like any other. There are those who are untrustworthy and unethical and there are those who are not. Research lenders online and carefully select the lender you want. The biggest misconception of all is that you should not apply for a short term cash loan. The reality is that many people use these loans very successfully.