The Myth of the Payday Loan Trap

If you listen to certain people and so-called experts, you may be led to think that that a payday loan is the worst financial decision you could ever make. If that’s true then millions of us are wrong to rely on these loans during times when there are few or no other options. The myth of the payday loan trap, that if you take out one of these loans you’ll never get out of debt, is a popular one, but it is just that, a myth. Here’s why.

A Payday Loan is a Small Loan

What most people are troubled by when it comes to payday loans is the high interest rate. But what these people who criticize the rate don’t understand is that these are small loans. Most people only ever use a payday loan to borrow amounts of less than $500. For a bank-sized loan, these rates would be pretty devastating, but for a small, personal loan, it doesn’t amount to much. It is far more affordable than the experts would have you believe.

A Payday Loan is a Short-Term Loan

In addition to the payday loan being a small loan, it is also designed to be a short-term loan. While a larger loan from a bank is typically a loan that is repaid over months and years, a payday loan lasts for a week, two weeks, or a few weeks at most. And, unlike credit cards, these lenders don’t encourage you to hold onto the debt for months and years; they want you to pay off the loan on time. The combination of a small loan amount and a short loan period means that borrowers get the cash they need with interest payments that just don’t amount to much, no matter what the critics want you to believe.

A Payday Loan is a Useful Solution to the Money Problems of Millions of Americans

The most important thing about the myth that needs to be destroyed is that people don’t need payday loans. The truth is that these loans are the only funding option form many people. For those living from one paycheck to the next, one little unexpected expense can throw everything out of balance. And where will these people turn for quick and affordable loans? The bank won’t give them out, and credit cards are a bad choice. For many Americans, payday loans are not only useful; they are essential.

The Myth of the Payday Loan TrapBy Heather Wilson - 12/1/16