Payday loans concept.

In the United States, payday loans and cash advances comprise a multi-billion dollar industry. Thousands of people take out these loans for various purposes each and every day. The industry as a whole has received a lot of negative attention in recent years. Many consumers fear using payday loans because of their mostly negative reputation. However, a lot of information surrounding these loans includes myths and outright lies that mislead consumers.

Myth #1: Payday loans will ruin your financial life

When people refer to these loans, they often talk about a cycle of debt. This involves constantly using cash advances in order to repay older advances. Such a cycle leads to a mountain of debt that a borrower simply cannot repay no matter what. Unfortunately, a similar situation does occur to a small percentage of borrowers. Financially responsible borrowers, however, find that their financial standing improves by taking advantage of these opportunities. They use the loans for what they are, stop gap measures to provide cash flow until their next pay period.

Myth #2: The average lender charges an annual percentage rate (APR) of 390%!

Most payday loans do come with an APR that hovers around 400%. Still, critics of payday lenders use this statistic in a misleading manner. The average loan terms include a 15% fee and a two-week repayment schedule. These cash advances never last for an entire year, so borrowers aren’t truly paying $400 for a $100 loan. For a two-week loan, they’re paying a completely reasonable and manageable $115 total. Critics mislead consumers in order to scare them away from these loans.

Myth #3: Lenders charge exorbitant rates to empty borrowers’ wallets

Payday loan critics commonly bash lenders for their high fees, too. They paint lenders as greedy companies that want every last penny from consumers. In reality, lenders lose about a quarter of their income to unpaid loans. Around six percent of borrowers default on their cash advances, which hurts lenders directly. By charging high but reasonable fees, lenders can pad out their losses and continue to offer a very valuable service to consumers.

Myth #4: Loan companies purposefully hide loan terms and interest rates

Nearly everyone has heard this particular myth before. The fact of the matter is that US federal law bars lenders from doing this very act. In 1968, Congress created the Truth in Lending Act, which requires lenders to display their terms in plain sight. A loan company can’t legally hide anything from its potential customers. Doing so comes with penalties that would put the average lender out of business for a single infraction. This industry is one of the most regulated in the US, UK, across Europe and Australia.

Myth #5: Consumers have better options than payday loans

In a general sense, consumers do hold various options at their disposal. This includes payday loans, credit cards, cash advances, bank loans, and more. The reality is that many Americans can’t quality for lines of credit or long-term loans. An individual with a poor credit score can’t acquire much of anything. Fortunately, payday loan companies rely upon proof of employment rather than credit history when approving applications. Plenty of consumers would be out of options without payday loans.

The reputation of payday loans might start to improve in the near future. Until then, many consumers will still believe these common myths about loans and lenders. There is no reason a responsible borrower should shy away from these loans when they need them. A payday loan can help a person pay their bills and emergency expenses without facing steep late penalties. These payday loan myths and others only serve to hurt the people they misinform.

Author Bio:

This article was written by Jaquie Dymock, Director of instant cash loans provider Ferratum Australia. You can catch Jaquie on Google+ as well.

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