Sometimes your paycheck doesn’t pay everything, and that’s when a payday loan may seem beneficial. You may be on the fence about getting a payday advance thanks to the various myths spread around, but here are the common myths explained and debunked.
Payday loans are another bill.
Payday loans are not long-term. They are short-term loans that are usually around two weeks long, meaning they would rarely last a month. It’s based on when you get paid next, meaning if you get paid once a month, your payment will be due by the end of the month. However, bi-weekly paychecks mean you’ll have to pay your loan after two weeks have passed.
Payday loans are expensive.
Payday loans do have very high-interest rates, but they aren’t necessarily expensive. The interest rates can be triple digits, but the period you have the loan isn’t long enough for significant interest to build up. Some payday advance lenders may even charge a certain amount per every hundred borrowed—$15 for every $100, for example. This can be an interest rate as much as 400%, but, due to the short-term limit, the amount may seem reasonable.
You can borrow as much as you want.
On top of lenders having a maximum amount, there are state laws that restrict the amount you can borrow as well as the fees. States that have a cap on payday lending fees include Arizona, Connecticut, Maryland, Massachusetts, North Carolina, Pennsylvania, Vermont, West Virginia, and the District of Columbia. Maine, Oregon, New Hampshire, Ohio, and Montana permit loans based on checks held for deposit but at a much lower rate than a typical payday loan. The remaining states allow triple-digit interest rates for payday loans. Government websites display how much you can borrow for each state, such as Washington allowing a $700 or 30% of your maximum income.
All payday loans are equal.
Aside from the state laws which restrict the maximums of each loan, payday advances are all different. A company can have its own interest rate and terms for a payday loan, especially in the states which do not restrict interest rate maximums. The caveat is that most financial groups do need to remain competitive to attract potential customers, but this may not affect some payday advance groups. It’s important to compare rates and terms of every loan to avoid getting in over your head.
Payday loans won't affect your credit.
Applying and receiving a payday loan will not change your credit, and even people with bad credit can get an advance. However, that doesn’t mean it won’t affect your history or score should something happen where you cannot pay off your loan. The financial group can send your debt to a collector, and it will appear on your history and affect your overall score. If you have bad credit, you may still have the ability to get a payday loan.
