Myth no.1: Payday loans lead you into a cycle of debt.
Fact: This is not true as studies have proven that there is no proof that payday lending leads to more bankruptcy findings. This myth is based on the philosophy that borrowers who take out new loans do so to pay off existing loans and repeat this in two weeks’ time. This is not true as there is a limit to the number of loans a consumer can take in a year.
Myth no.2: Payday lenders are predators.
Fact: This is not true as people who take payday loans do so to avoid missing payments on other debts. This is why households with uncertain income living in states with unlimited payday loans are least likely to miss a debt payment over the year.
Myth no.3: Payday lenders earn great profits.
Fact: This is not true as its operating costs are not inconsistent with the size of the collected advance fees. It is true that payday loans are a bit more expensive than other loans, but are not outrageous. It’s not possible to consider the annual percentage rate of these loans as they are short term loans when compared to longer termed car and mortgage loans. In fact, it is the short term of a payday loan that makes it difficult for its lenders to see a profit.
Myth no.4: Bouncing checks or paying overdraft fees is better than getting a payday loan.
Fact: This is not true as though the bounced check fee is not higher than the payday loan interest, the bounced check fee doesn’t stop here. There is a chance of the merchant who had written out the check charging you and even taking money from your checking account, in addition to the original owed amount. Moreover, merchants usually send bounced checks a second time, which incurs another fee from the bank. Pretty soon, this fee amount exceeds your payday loan amount!