BBB says stay independent from payday lenders’ cycle of debt
Consumers can easily slip into a debt trap, especially as inflation seems to be eroding buying power. Payday loans may be enticing when you’re in the downside of the cycle of debt, but your Better Business Bureau (BBB) advises extreme caution. Take a few moments to consider how your debt could climb skyward even as you’re trying to diffuse a precarious financial problem.
For those with credit problems, payday lenders have enormous appeal. Bank lenders and credit card companies may not be an option, causing you to turn to the quick fix of a payday loan. These loans come at a huge cost, however. Their sky-high interest rates can force you into a cycle of continued renewing of that loan, paying new fees every two weeks, digging a deeper and deeper hole. Video ads for these lenders are now showing up on TikTok, trying to appeal to a new, younger audience. The loans are made to look cheap and easy. Claims made are often dishonest and can ensnare those who are unaware of the deception.
Deciphering payday loans
Here is what the ads for payday loans do not tell you:
• The loans are expensive. The Consumer Protection Bureau says these lenders’ interest rates are in the stratosphere, at nearly 400 percent. Even high-interest credit card rates are only around 30 percent.
• Just because the loan is easy to get, doesn’t make it a smart idea. Look for other options. They are targeting you if you’re young or have bad credit, by touting “no credit check” or other paperwork.
• Social media ads cannot be trusted. Look too good to be true? It is. Never take the claims made in social media ads at face value. Do your research.
• Be sure you can pay off the loan. Their high interest rates can entrap you. Your inability to pay the loan off can further ruin your credit.
• You should never pay an upfront fee for a loan. Never pay with a post-dated check to cover the amount borrowed plus interest.
• Walk away if they ask for fees paid in advance and in cash. The same goes for requests via wire transfers.
• You should only borrow what you know you can pay off with your first paycheck. When they allow you to “rollover” the balance from week to week they are tacking on extra charges. The next thing you know, you are owing much more than you originally needed.
• You have rights. They are required by law to disclose your rights before giving you the loan. That should include the cost, interest rate and any other fees. It may all be in fine print, and you should read it all.
• You should keep all documentation. Some report getting calls from collection agencies years after the loan was paid off. Save your evidence that you paid off the loan.
• You should check out any business you are considering using at bbb.org.
• If you are treated unfairly you should report it to the Federal Trade Commission and to the BBB.
If it’s not too late, develop a spending budget with an emergency fund. Setting aside even a small amount of cash with each paycheck can help you get past a financial rough spot.
If you need a loan, shop around. Look at interest rates, charges, and late fees, all found in the fine print which only smart customers read. Credit unions are always a good place to check out for small loans that have reasonable fees. Even credit card advances can be better than payday loans.
Remember to contact creditors if you can’t pay on time. Many will work with you to develop a payment plan.
For answers to other questions regarding payday loans and their alternatives, contact BBB at (800) 856-2417 or visit our website at BBB.org.