5 Common Misconceptions that Consumers have about Payday Loans

In this post, we’ll look at some of the common misconceptions about payday loans and debunk them.

16:18 16 February 2022

There are many misconceptions surrounding payday loans. Most of these misconceptions hinder individuals from applying for these loans when they direly need some quick cash. 

 

Don’t let misconceptions prevent you from getting a loan during a financial crisis. In this post, we’ll look at some of the common misconceptions about payday loans and debunk them. 

 

5 Common Misconceptions that Consumers have about Payday Loans

 

1. Finding A Suitable Payday Lender Is Time Consuming

There’s a common misconception that applying for payday loans takes up a lot of your time—this claim has no basis. 

 

There are various loan matching platforms available like Gday Loans which can match you with lenders who offer instant payday loans Australia.

 

These loan matching platforms make the process of looking for a suitable lender easier. Additionally, you get the chance to choose a lender with the most competitive rates. 

 

2. Payday Lenders Are Predatory

Many people deem payday lenders predatory as they usually target markets with low-income households and minorities.

 

However, one can argue that payday lenders are just tapping into an underserved market or a majority of their customers are those with financial constraints. 

 

This simply means that lenders don’t target low-income earners; they’re just a natural customer base. 

 

Recent research indicates that most payday customers are middle-class families with financial difficulties. Payday loans give individuals access to quick cash—it’s among the fastest loans available currently!

 

3. Payday Lenders Use Force Or Threats When Collecting Late Payments

Payday platforms are highly regulated. Their methods of collecting late or missed payments are similar to those of banks. These methods are lawful and fair, and they’re used to encourage repayment.

 

However, in extreme situations, you might be handed to a debt collector who will follow the rules and regulations of debt collection. 

 

Report any platform that threatens or coerces you to repay any loan to the relevant Australian authorities. The law will also protect you if the lender's behavior is beyond the scope of these authorities. 

 

4. Payday Loans Have Flexible Repayment Terms

Initially, payday loans were meant to keep you going till your next paycheck. In the original model, you were supposed to clear payday loans with your next payslip. 

 

However, the model has since evolved. Some payday loan platforms offer customers repayment flexibility. There are payday platforms that allow borrowers to choose the repayment terms that can range from 7 days to 7 weeks, depending on what suits them.

 

This may give you the impression that you’re in charge of your repayment term, but you’re not. There’s something known as a Continuous Payment Authority (CPA) incorporated into most payday loan agreements. In simpler terms, by signing the contract, you’re allowing the lender to access your bank account directly. 

 

The CPA permits the lender to deduct recurring payments from your account. They do this whether you’ve budgeted for the payment or not, and it’s difficult to revoke it if you’re in a bad financial situation. This leaves you with little or no control over the loan term.

 

 5. All Payday Loans Have High-Interest Rates And Hidden Fees

Upon seeing the APR, most people automatically conclude that this indicates high interest rate repayments—since the APRs are usually in hundreds and thousands. However, APR denotes the Annual Percentage Rate and only indicates the rate you’d pay if the loan extends throughout the year. Many payday loans are short-term, so the APRs are usually lower. 

 

Although some payday loans have exorbitant interest rates, you have the chance to compare different platforms providing short term loans and pick the lender that suits you best. You can select a lender offering lower rates.

 

You can use a broker if you’re struggling to find a suitable loan. Brokers take your details and match them up to the different loans on offer and help you pick the most appropriate one. 

 

Broker services cut your search time and eventually help you acquire the loan quickly without unnecessary stress. 

 

Obviously, you’ll pay back more money than you receive, but that’s how every loan works. The incentive for creditors to extend loan facilities to you is the interest rates they bundle with the loan. You can get a loan at low interest rates with a good credit score, particularly if you can repay the whole amount early.

 

Some people assume that payday loan lenders include hidden fees into the repayment sum, but this is false. This is an illegal practice that any reputable lender avoids at all costs. 

 

Your loan agreement has information on the fees linked to the payday loan. Legally, it’s impossible for payday loans to have hidden terms or fees or for those terms to change after you sign the agreement.

 

You should go through the terms carefully before signing anything. The loan industry has strict regulations to protect customers from unethical lender activities. Therefore, it’s upon you to read the agreement cautiously. 

 

Bottom Line

Financial constraints happen to the best of us. In case it befalls you, payday loans offer quick funds to meet your urgent needs. Misconceptions shouldn’t hinder you from getting help during emergencies. 

 

The myths above are just a few of the many surrounding payday loans. Do extensive research to find out more about payday loans. Bear in mind that not everything you hear is true!