It’s been a tough few years for many Americans. Unfortunately, trying to stretch every dollar to buy necessities has become the norm. Some might look for a second or third job to pay the bills.
This is precisely the type of person that payday loans are aimed at. Promising quick cash without telling the whole story of loan costs, these ads have appeared on social media platforms like TikTok.
Read on to find out how these companies get around the rules and why it’s bad to take out a payday loan.
Here’s the backstory
All social media platforms have advertising as it is a main way of generating profit. But some sites are not as strict about ad content as others. For example, TikTok claims to have a policy against “exaggerated performance or promise.”
However, there are many payday loan posts targeting vulnerable users. According to Media Matters for Americathree companies consistently violate TikTok’s advertising policies by promoting payday loans.
Promising instant money, Earnin, Brigit and Albert posts target those in dire need of money with words like “living paycheck to paycheck” or always being “broke.” It is not clear how advertising is allowed to be on the platform.
But Earnin is no stranger to controversy. The company settled a $12.5 million lawsuit over deceptive lending practices three years ago. Brigit and Albert are also not registered with the Better Business Bureau (BBB), as some users claimed there were unexpected fees or missing deposits.
What can you do about it
It may seem like a lucrative opportunity to quickly get some cash in your wallet, but there will always be a catch. The interest rate will be exorbitantly high and they won’t call you as often. Some ads will use words like “fee” or “tip” without mentioning the interest rate.
According to the Consumer Financial Protection Bureau, a two-week payday loan with a $15 fee to borrow $100 gives you an APR of 400%. That’s much higher than the typical 30% on a high-interest credit card.
That can leave you in a cycle of debt, but according to the BBBThere are safer alternatives to personal 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 bills. This will help avoid the need for a loan in the first place. Then set aside cash each month to create an emergency fund. You’ll be covered even if an unexpected expense or emergency arises.
- Get credit counseling. Get credit counseling if you can’t pay your bills or find yourself stuck in a cycle of debt due to a high-interest loan. the US Department of Justice has a list of agencies for people seeking debt reduction assistance. Also, see the BBB’s advice on credit counseling for more resources.
- search for loans. Compare interest rates, fees, and late fees by reading the fine print before choosing a lender. Pay close attention to interest rates and loan renewal fees. Credit unions are a great place to get a small loan at reasonable interest rates. Even credit card cash advances, which typically carry double-digit interest rates, are likely to have lower interest rates than what a payday lender offers.
- 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 are willing to work with you to design a payment plan that you can afford.
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