Payday Loan Myths

It can be very difficult to find factual information regarding payday loans. Critics opposing payday loans acuse the industry of bad practices that create misconceptions. While every industry has its bad apples, these untrue claims don’t hold up if you look at the facts.

One Line Paday Loans is dedicated to providing you with the top lenders in the country, we take pride in finding lenders that follow the CFSAA.com standards. Below are 10 payday loan myths you may have heard:

1. Interest Rates of Payday Loans Gouge the Borrower

The most common misconception you hear about payday loans is the interest rates are over 300% APR (Annual Percentage Rate), while this is extremely shocking to hear, it is simply not true. APR is the interest charged over a full year, a payday loan is a short term loan usually only lasting a couple weeks. The Federal Truth in Lending Act requires all lenders to disclose the fees and interests of a loan as APR in the terms provided to the borrower, so when you get a payday loan for $200 with a fee of $25 for 14 days, that is 326% APR, this is VERY misleading, you would need to roll over your loan 26 times to actually pay 326% APR.

Now if ou apply these misconceptions to other financial situations, you can see how misleading these claims against payday loans are:

• $200 payday loan advance with a $25 fee = 326% APR
• $200 utility bill with $50 reconnect fee = 652% APR
• $200 credit card payment late fee of $36 = 469% APR
• $200 check bounce with $35 fee = 391% APR

As you can see, the fees you are normally charged for other services are much more expensive than a typical payday loan.

2. Trapping Borrowers in a “Debt Cycle”.

Some predatory lenders try to manipulate borrowers into continually rolling over their loans (some states don’t allow this) which piles on the fees, it is important to borrow from reputable lenders such as the lenders One Line Payday Loans refers.

It is equally important to be responsible with your loans, only borrow what you know you can pay back.

3. Lenders of Payday Loans Make Huge Profits.

Relative to the profits traditional banks make, cash advance lenders fall far short in terms of profitability. Short term loans are more expensive to maintain and process compared to traditional loans, the profit margin for an average payday loan is about 3.5% while a traditional commercial lenders profit is in the range of 13%, multiple times higher than paycheck advance loans.

4. Payday Loans Take Advantage of Low Income Families.

The reality is, most borrowers are hard working Americans with incomes from $25-$50,000 a year. 94% of borrowers have a high school diploma while 56% attended college or have a degree, payday loan borrowers are gainfully employed and educated, hardly only low income. The fact is anyone can be in need of a short term loan to cover unexpected expenses.

Majority of payday loans require a bank account and recent pay stub, you will only be lent will be determined by what you can payback, the goal is to provide a fair loan amount, not a loan that can’t be repaid.  

5. Paycheck Advance Lenders Hide Terms From Borrowers.

By the requirements of the Federal Government, lenders are required to disclose all terms and conditions when issuing a loan. In turn, it is also very important to take the time to read through all the terms and conditions yourself and only deal with reputable lenders.

6. Targeting Those in Debt.

While some borrowers need money to make a payment on an existing debt, not every situation is that case. Many people need money for many different reasons, payday loan lenders are simply there to provide cash when it is needed, if it happens to be someone in debt, a payday loan is there to help.

7. It is More Cost Effective to Pay Over Draft Fees Than Get a Payday Loan.

Typical bank fees for an overdraft range from $30-$40, while an average payday loan fee is $20. Not only are payday loans cheaper than getting an over draft charge, you actually know when you are being charged a fee! How many times have you checked your bank statement to find a surprise fee(s)? It is clear, when used responsibly, a cash advance loan is far more cost effective than bank fees.

8. Payday Loan Opposition Has the Consumer in Mind.

Those behind hind ani-payday loan lenders aim to stop short term loans, where else is someone to turn when in need of money quickly? The people against cash advances, have typically never even used the service, they see it as a negative thing and feel they have to “protect” everyone who has enjoyed a payday loan.

Get your payday loan today from a reputable lender