Despite the increasing popularity of payday cash advances, critics of the industry have ways to mislead borrowers. They have been circulating information that is merely exaggerated facts and false accusations. It is important that borrowers of payday cash advances be able to discern which information is true or just made up.
Here are some of the Common Myths regarding payday cash advances:
Myth 1: Payday cash advance lenders take advantage of borrowers through their very high interest rates.
Payday cash advances may have expensive interest rates, but this is not to take advantage of the borrowers emergencies, but because they are short term loans. Generally, short term loans have an average of 15%-30% interest rate for a maximum of three weeks compared to long term loans that have 7% interest rate for several years or longer. But when calculating these figures, long term loans become more expensive than short term payday cash advances.
Payday cash advances are expensive because of the greater risk they take compared to financial institutions that offer secured loans. Most lenders of payday cash advances offer no collateral to secure the repayment of loans. The paychecks of their borrowers are their sole assurance of being paid back the money they loaned.
Myth 2: Payday cash advances are unregulated and do not disclose hidden fees.
This fact is definitely incorrect there are 37 states in the United States that have very concise and clear regulations concerning payday cash advances. Although there are 16 states that have banned payday cash advances, the rest of the states have regulatory provisions that monitor and control the lending industry. The state regulations govern maximum and minimum amounts to be borrowed, limit interest rates and fees to be charged and the number of loans to be borrowed at a time.
Also, lenders of payday cash advances are required by law to disclose to their borrowers any upfront fees, interest rates and other additional charges associated with the loan. CFSA (Community Financial Services Association), the association of registered payday cash advance lenders, strictly observes the Truth In Lending Act by all the members. Also all fees and rates must be clearly outlined and disclosed to the borrower. They have created the Best Practices in lending to maintain responsible lending standards. Also, CFSA has been very involved in assisting state legislators and authorities in creating and maintaining payday cash advance loan regulations that satisfy the instant cash needs of American families.
Myth 3: Borrowers of payday cash advances live in a cycle of debt.
Although payday cash advances have been a major help with assisting with the cash needs of millions of American families, they are still often accused of placing their borrowers in the cycle of debt. The truth is, the government has been imposing regulations on payday lending to prevent borrowers from being trapped in the cycle of debt. In fact, the number of rollovers allowed is set at a maximum of four times. So, borrowers of payday cash advances are not stuck in a long loan term loan with high interest rates. Most importantly, borrowers are advised to pay on time and be responsible with their repayment schedules to avoid extending their loans.
Knowing these myths will help borrowers of payday cash advances make informed decisions and sound choices.