PayDay Loans: Myths About Payday Finance (8/6/2011)

There are a lot of myths about payday loans, and if you buy into them then you could miss out on getting the financing that you need. There is a conception that the interest rates are too high, for example, even though they are the lowest for a short term emergency loan that you can get. This article will clear up some of these misconceptions by describing how payday finance actually works.

How Pay Day Loans Work

As long as you are paid enough in a month to afford to get a pay day loan, you should have no problem in getting one. It usually only takes a few minutes to apply online, and the approval should come almost instantaneously. If you apply early enough, the money will then be transferred directly to your bank account, and the principal with interest will be taken out when you\?re next paid.

The only things other things you have to be concerned about are really just technical details. For example, you need to be 18 years old, or above. Also, you\?ll need a bank account of course, with a debit card attached to it in order to simplify the transactions.

No Credit Check

Payday lenders generally don\?t perform credit checks. The myth associated with this fact is that they are hoping their borrowers will not be able to pay back on time so that they can charge a lot more in interest.

The reason that this view is usually held is because when banks and other long term lenders check credit histories, that is taken as a sign that they are being responsible. Really though, they do it because they are going to have to make a loan which will partly be based on the borrower\?s income in a year or more, which of course nobody knows. A credit check just lets them make a better guess.

Having said that, it is certainly also useful that the absence of credit checks speeds up the process for payday finance. That\?s because loans of this type are often used in an emergency, so the money is going to be needed in a hurry. In other words, it is the borrower that benefits from this practice.

Loan Sharking?

Another common myth is that payday lenders are loan sharks, the implication being that they prey on poor people. When a company provides a service that a certain sector needs though, is that preying on them? Are people who want to buy a house being preyed on by mortgage providers, for example? Of course that is absurd, but it is the same reasoning.

So while it is true that poor people will be the ones taking out the loans usually, that\?s just a consequence of what they are used for. They\?re needed in emergency situations, for things like unpaid bills and car repairs. When people who are not poor, who have savings, come across problems like this they simply use their own money to pay for them so they don\?t need a loan.

Interest Rates Too High?

The most common misconception about pay day loans is that the interest rates are too high. For the borrower of course, they are always going to want to pay less in interest, and the lender is always going to want to charge more. The actual price is what each party is satisfied with.

By making a direct comparison between the amount of interest you have to pay for a payday loan and how much you have to pay for a normal bank loan though, you\?ll see that they are about the same. The whole problem comes about because people want long term APRs for short term loans, which would certainly increase their demand but the lenders would be making very little.

To learn more concering the true rates of interest for payday finance go to payday loans where John Breese also writes.

Related posts:

1. Finance: How Borrowers With Bad Credit Can Avail Of Quick Online Payday Loans (7/6/2011)
2. Finance: Learn About Payday (8/15/2010)
3. Loans: A Summary Of Loans For Bad Credit People Seek (7/15/2011)
4. Finance: Reasons For Getting A Payday Loan (7/12/2010)
5. PayDay Loans: I Need A Payday Loan Immediately For Last Minute Expenses (9/3/2010)

Source: http://www.myfinancearticles.com/5508/

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