Warning: ‘pay day loans can be troublesome’


By John North, President and CEO - Better Business Bureau



Pay day loans are typically for people who need cash in a hurry. People with poor credit or those with little to no savings are a natural clientele for pay day lenders. These loans may seem like a simple way to solve financial issues, but that couldn’t be further from the truth.

Pay day loans work differently than most loans in that they are not only due to be repaid in a short-term time frame, but they also come with high interest rates. Usually, you write a personal check payable to the lender in the amount you wish to borrow and the lender holds the check until your next payday and then deposits the amount you borrowed plus interest and fees. Additional fees are added if you wish to extend the term of the loan, adding new fees for each extension. If the borrower chooses an internet payday lender, the loan is applied for online and the funds are delivered and collected through electronic fund transfers between the lender and the borrower’s bank account. The loan is based on electronic access to the borrower’s bank account.

Payday loans are dangerous financially and some states even have laws that prohibit these loans. A Consumer Finance Protection Bureau study found over 80% of payday loans are rolled over or re-borrowed. That means the majority of these short-term, no credit check loans are being extended way beyond their two-week payment term.

Better Business Bureau offers tips to consider before taking out a payday loan:

• Don’t send money in advance. Disreputable services will ask you to send money to cover the cost of taxes or application processing. Legitimate pay day loan companies will collect fees when your payment comes due.

• Limit your borrowing amount. Only borrow the amount you know you’ll be able to pay back. Otherwise, the amount will rollover and force you to pay back even more.

• Find the best deal. Compare terms and fees of different lenders.

• Determine how you can contact the company. Be wary if you’re only provided an e-mail address. It can be advantageous to deal with a business with a physical location so you can talk to someone face-to-face.

• Check for a license. Contact the Department of Financial Institutions in your state. Inquire if any complaints have been made against the lender. Untrustworthy lenders will often operate unlicensed or outside of the U.S.

• Make sure the lender discloses pertinent information before the loan is taken, such as cost, interest rate and other fees.

• Understand the risks and consequences of not paying on time. This may vary company to company.

• Keep all your documentation.

Pay day loans may seem like good options for short-term cash issues, but they often lead to unfortunate debt cycles and increased debt. Therefore, it’s important to understand the risks associated with pay day loans and how to approach them from a responsible angle. If you have questions, concerns or would like to report a fraudulent pay day loan company, visit bbb.org or call 937-222-5825 or 800-776-5301.

By John North, President and CEO

Better Business Bureau