Need a short term loan? You may be tempted by TV and online ads for payday lenders.
The FTC recently sued several online payday lenders for violating federal laws.
The lenders allegedly lied about how much their loans would cost, required borrowers to allow the lenders to take money from their bank accounts automatically, and threatened to sue the borrowers or have them arrested for non-payment.
Some online payday lenders are making multiple withdrawals from borrowers’ bank accounts, and assessing a new finance fee each time. Some borrowers are paying over three times the amount they originally borrowed.
Some lenders are doubling as unscrupulous debt collectors who falsely threatened to sue the borrowers, or have them arrested.
The BBB offers the following ten tips when shopping for a payday loan.
1. Shop and compare offers before taking out a payday loan.
2. Never pay a fee in advance with the promise of receiving money.
3. When comparing credit offers, check out the business with the BBB.
4. Shop for the credit offer with the lowest cost. Find out the annual percentage rate (APR.) Also find out the finance charge including loan fees and interest. You are looking for the lowest APR. If you are shopping online and can’t find the APR and the finance charge, visit lenders in person.
5. Consider a small loan from a credit union. Some banks may offer short-term loans for small amounts at competitive rates.
6. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds. Find out the terms before you decide.
7. Contact your creditors or loan servicer as quickly as possible if you are having trouble making a payment, and ask for more time. Many may be willing to work with you if they believe you are acting in good faith. They may offer an extension on your bills. Find out the charges for that service. There could be a late charge, an additional finance charge, or a higher interest rate.
8. Make a realistic budget, including your monthly and daily expenditures. Try to avoid unnecessary purchases. those daily cups of coffee and small everyday items add up.
9. A savings plan – however modest – can help you avoid borrowing for emergencies.
10. Find out if your bank will offer you – overdraft protection on your checking account. Find out the costs and what it covers.
Other articles from the Federal Trade Commission include: