What you should know about payday loan ads on social media

through: Better business office

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If you’ve ever needed extra cash to cover 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. But just because it looks easy doesn’t mean it is. Predatory payday lenders use the platform to make dishonest claims promising instant cash with no credit checks, late fees or interest rates.

Advertisers often circumvent the rules of the platform. tick tock and Meta have rules restricting short-term/payday loan ads, but some have found their way.

Here’s what you should know before taking out a payday loan through a social media ad.

  • Apps might not call it an “interest rate,” but it is. Many of the lenders advertise on TikTok try to circumvent regulations by creating new names for their ministry. By labeling their interest rates a “tip” or “fee,” lenders hope you don’t notice how much interest you’re actually paying. Remember that responsible lenders will always be willing to disclose the APR on their loans.
  • Payday loans are expensive. A two-week payday loan with a $15 fee for a $100 loan equates to an annual percentage rate (APR) of almost 400 percent Consumer Financial Protection Agency. That’s a huge leap from even a high-interest credit card, which has rates of around 30 percent.
  • Just because it’s easy doesn’t make a payday loan a good idea. If you’re young or don’t have access to other types of credit, you’re an ideal target for a payday lender. Less unscrupulous lenders promote the fact that you don’t need a credit check or paperwork to get a loan. However, this ease can come at a high cost. Before deciding on a payday loan, you should spend some time researching 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 this have been investigated for fraudulent lending practices and some may simply be out to gain access to your bank account. Don’t believe everything you see Social Media Ads without further research.
  • Make sure you can pay back the loan. With interest rates this high, many people are in a crisis debt cycle. In addition, payday loans can ruin your credit if you are unable to pay off your debts.

source: BBB.org

Better alternatives to payday loans

  • Develop a budget with an emergency fund. A… create budget so you know how much money you have and how much you need to pay your bills. In this way you avoid a loan from the outset. Then set aside some money each month to build an emergency fund. Then you’ll be covered even if unexpected expenses or an emergency arise.
  • Get credit advice. If you find you can’t pay your bills or are stuck in debt on a high-interest loan, seek help from a credit counselor. That US Department of Justice has a list of agencies for people looking for debt reduction help. In Canada, see this list of Canadian Non-Profit Credit Advisory Agencies. Check out BBB’s tip too Credit advice for more resources.
  • Do your research if you need credit. Compare interest rates, fees, and late fees by reading the fine print before choosing a lender. Pay attention to both interest rates and loan renewal fees. Credit unions are a good place to go for a small loan with reasonable interest rates. Even credit card cash advances, which typically have interest rates in the double digits, are likely to have lower interest rates than what a payday lender is offering you. See Tips for choosing a bank or credit union.
  • Contact creditors if you cannot pay on time. If you find you can’t make a payment on time, don’t panic. Contact the creditor directly. Many creditors will be willing to work with you to create a payment plan that you can afford.

For more informations

read this BBB Tip: Payday Loans for more considerations on working with payday lenders. You can find practical tips in BBB Tip: How to shop for financial services also.

If you think a payday lender has committed fraud or taken advantage of you, file a complaint BBB.org and with that Federal Trade Commission.

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