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Milwaukee, Wis. – If you’ve ever needed extra cash to tide you over to your next paycheck, you understand the appeal of a payday loan. Now, video ads on places like TikTok are promoting small, short-term loans to a new, young audience – and making them seem cheap and easy. However, just because it looks simple, doesn’t mean it is. Predatory payday lenders are using the platform to make dishonest claims promising instant cash with no credit checks, late fees, or interest rates.
Here’s what you should know before taking out a payday loan from a social media ad.
Understanding payday loans featured on social media ads
- Apps might not call it an “interest rate” but that’s what it is. Many of the lenders that advertise on TikTok try to skirt regulations by creating new names for their services. By calling their interest rates a “tip” or a “fee,” lenders hope you won’t notice just how much interest you’ll actually pay. Keep in mind that responsible lenders will always be willing to disclose the APR on their loans.
- Payday loans are costly. A two-week payday loan with a $15 fee to borrow $100 translates to an annual percentage rate (APR) of almost 400 percent, according to the Consumer Financial Protection Bureau. That’s a huge jump from even a high-interest rate credit card, which has rates of about 30 percent.
- Just because it’s easy, doesn’t make a payday loan a good idea. If you are young or have no access to other types of credit, you are an ideal target for a payday lender. Less-than-scrupulous lenders promote the fact that you don’t need a credit check or any paperwork to get a loan. However, that ease can come at a high cost. Before you pursue a payday loan, spend some time shopping around for other options.
- Not all social media ads are truthful. Payday lenders seen on TikTok may promise you instant cash. But if it sounds too good to be true, it probably is. Many companies like these have faced scrutiny for deceptive lending practices, and some may simply be after access to your bank account. Don’t believe everything you see on social media ads without doing further research.
- Be sure you can repay the loan. With such high-interest rates, many people find themselves stuck in a debt cycle. In addition, payday loans can ruin your credit if you find yourself unable to pay back what you owe.
Better alternatives to payday loans
- Develop a budget with an emergency fund. Create a budget so you know how much money you have coming in and how much you need to pay your bills. This will help you avoid needing a loan in the first place. Then, set aside some cash each month to build up an emergency fund. Then, you will be covered even if an unexpected expense or an emergency comes up.
- Get credit counseling. If you find yourself unable to pay your bills or if you are caught in a debt cycle due to a high-interest loan, get credit counseling. The U.S. Department of Justice has a list of agencies for people looking for debt reduction assistance. Also, check out BBB’s tip on credit counseling for more resources.
- Shop around if you need a loan. Compare interest rates, charges, and late fees by reading the fine print before you choose a lender. Pay close attention to both interest rates and loan rollover fees. Credit unions are a good place to take out a small loan with reasonable interest rates. Even credit card cash advances, which usually have interest rates in the double digits, likely have lower interest rates than what a payday lender will offer you. See tips on choosing a bank or credit union.
- Contact creditors if you can’t pay on time. If you realize you won’t be able to make a payment on time, don’t panic. Contact the creditor directly. Many creditors will be willing to work with you to come up with a payment plan that you can afford.
For more information
If you feel a payday lender has committed fraud or taken advantage of you, file a complaint on BBB.org and with the Federal Trade Commission.For more information or further inquiries, contact the Wisconsin BBB at www.bbb.org/wisconsin, 414-847-6000 or 1-800-273-1002. Consumers also can find more information about how to protect themselves from scams by following the Wisconsin
ABOUT BBB: For more than 100 years, the Better Business Bureau has been helping people find businesses, brands and charities they can trust. In 2021, people turned to BBB more than 200 million times for BBB Business Profiles on 6.3 million businesses and Charity Reports on 25,000 charities, all available for free at BBB.org. There are local, independent BBBs across the United States, Canada and Mexico, including BBB Serving Wisconsin which was founded in 1939 and serves the state of Wisconsin.