BBB Tip: Payday Loans

With Christmas fast approaching, many find themselves strapped when it comes to making it through the holidays. Sometimes people turn to short-term, or payday loans to help get them over a financial bump. The Better Business Bureau has a few tips on how to make sure you understand the risks.

Consumers that find themselves cash-strapped may look for payday loans to help bail them out of a hole. However, if you are not careful, these loans can make financial matters worse as they often have high interest rates and high-pressure collection tactics. BBB advises consumers to make sure they understand the risks associated with them.

Payday lenders tend to appeal to people whose credit may not be good enough to obtain a credit card or bank loan, and therefore need to rely on short-term loans to get by. What borrowers may not realize is that high interest rates can lead them into a “debt cycle” which forces them to repeatedly renew the loan and pay new fees every two weeks until they can finally save enough to pay off the principal and get out of debt.

Consider these tips before you choose a payday lender:

  • Start with trust. Check out the company’s BBB Business Review to see its rating, history of complaints and other information.
  • Never pay an upfront fee. Some short-term loan providers will ask for a post-dated check to cover the amount you borrowed plus interest and fees. However, if any lender asks for those fees in cash before giving you any money, walk away — especially if it’s an online lender asking for money via wire transfer. Charging undisclosed upfront fees is illegal, and cash sent by wire cannot be traced.
  • Limit the amount you borrow. Only borrow what you know you can pay off with your first paycheck. Most companies will allow you to “roll over” the balance for several weeks or months but will tack on fees the whole time. This can result in you owing several times what you borrowed in the first place.
  • Know your rights. Payday lenders are required to disclose certain information before initiating a loan. That information includes the cost, the interest rate to be paid and the specific fees that will be paid.
  • Read the fine print. Pay close attention to fees and consequences of non-payment. Will the company allow you to make arrangements if you cannot pay?
  • Keep your documentation. Many consumers said they started receiving calls from collections agencies years after they paid off a payday loan. Some of these calls were simple errors; others were attempts by scammers to collect a debt that is not owed. Protect yourself by having documentation that all loans were paid in full.
  • Know where to turn. If you feel a lender has committed fraud or taken advantage of you, file a complaint with BBB and the FTC.


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