BBB of Wisconsin Reminds Residents that Most Payday Loans Are Too Good to Be True

Wednesday, June 15th, 2022 -- 11:00 AM

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. Many times, the advertisers are getting around the rules of the platform.

TikTok and Meta have rules restricting ads for short-term/payday loans, but some have found their way through. Here’s what you should know before taking out a payday loan from a social media ad.

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.

Payday loans are costly. A two-week payday loan with a $15 fee to borrow $100 translates to an annual percentage rate of almost 400 percent, according to the Consumer Financial Protection Bureau.

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. 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. 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 include 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. 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.

Shop around if you need a loan. Compare interest rates, charges, and late fees by reading the fine print before you choose a lender. 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.

Feel free to contact us with questions and/or comments.