BBB talks with payday lenders
BBB Says Stay Independent of Payday Lenders Debt Cycle Consumers can easily fall into a debt trap, especially as inflation appears to be reducing purchasing power. Payday loans can be tempting when you are in the downside of your debt cycle, but the Better Business Bureau (BBB) recommends extreme caution. Take a few moments to consider how your debt may rise even as you are trying to solve an uncertain financial problem. For people with credit problems, payday lenders are very attractive. Bank lenders and credit card companies may not be an option, which causes you to turn to a quick payday loan repair. However, these loans come at enormous costs. Their exorbitant interest rates can force you to renew that loan over and over again, paying new fees every two weeks, digging a hole deeper and deeper. These lenders’ video ads are now popping up on TikTok in an attempt to reach a new, younger audience. Loans look cheap and easy. Claims are often dishonest and can entrap those unaware of the fraud. Deciphering payday loans Here’s what the payday ads don’t say: • Loans are expensive. The Consumer Protection Bureau says these lenders’ interest rates are in the stratosphere at nearly 400 percent. Even high credit card interest rates are only around 30 percent. • Just because a loan is easy to obtain does not mean that it is a smart idea. Look for other options. They reach out to you if you are young or have bad creditworthiness by touting “no credit checks” or other paperwork. • Social media advertising cannot be trusted. It looks too good to be true? This is. Never take any claims made in social media ads at face value. Do your research. • Make sure you can pay off the loan. Their high interest rates can entrap you. Your inability to pay off your loan can ruin your credit even more. • You should never pay the loan fee in advance. Never pay with a post-dated check to cover the amount borrowed with interest. • Walk away if they ask you to pay the fees in advance and in cash. The same applies to applications via bank transfer. • Borrow only as much as you know you can pay off your first paycheck. When they allow balances to roll over from week to week, they charge extra. The next thing you know is that you owe much more than you initially needed. • You have the rights. They are legally required to disclose your rights before granting you a loan. This should include cost, interest, and any other charges. Anything can be fine print and you should read it all. • You should keep all documentation. Some reported receiving phone calls from debt collection agencies years after the loan was paid off. Keep proof that you have paid off the loan. • On bbb.org you should check every company you are considering using. • If you are being treated unfairly, you should report it to the Federal Trade Commission and the BBB. Better alternatives If it’s not too late, budget your spending with an emergency fund. Putting aside even a small amount of cash with each withdrawal can help you overcome a difficult financial situation. If you need a loan, shop around. Look at interest rates, fees and late fees, all of this can be found in the fine print that only smart shoppers read. Credit unions are always a good place to look for small loans with reasonable fees. Even credit card advances can be better than payday loans. Be sure to contact your creditors if you are unable to pay on time. Many people will work with you to develop a payment plan. For answers to other questions about payday loans and their alternatives, contact BBB at (800) 856-2417 or visit our website BBB.org.