Payday loans are now available online, which is convenient for those who need a few extra bucks until their next paycheck.
But some companies have found ways to take advantage of Americans most financially vulnerable.
The Better Business Bureau said this week that consumers should proceed with caution when using a payday loan app.
Here are some of the tips provided by the Better Business Bureau:
- Understand how cash advance loan applications work. TheCollegeInvestor.com defines cash advance loan applications as “applications that allow you to deposit money that you have already earned into your checking account before payday”. Some cash advance apps work on the basis of wages earned in partnership with employers, while others work directly with consumers. After calculating your current income, the apps give you a small loan. Your loan amount is then deducted from your next paycheck. Some apps require a monthly subscription fee. Others charge a fixed fee for loans or allow you to voluntarily “tip”.
- Get to know the lender. If you decide to use an app to get a cash advance, search for the finance company on BBB.org first. Make sure the company has a reputation for honest business practices. Besides, ConsumerFinance.gov recommends knowing if the lender is licensed by your state, which also means better protection for you.
- Read the conditions carefully. Take the time to carefully read the terms of the loan. Make sure you understand when the loan is due and how much you will need to pay if you don’t pay on time.
- Find out about the fees. Beware of cash advance apps that claim to be completely free. This means that there are usually hidden fees and costs, warns NextAdviser. Fees may be disguised by other names, including “tips”, “donations”, “membership fees” or “premium account access”. Find out what you’ll pay, and know that seemingly low fees can add up over time. For example, Nerd wallet points out that paying $ 2 to withdraw $ 20 for two weeks works out to an annual percentage rate of 260%. This is comparable to what traditional payday lenders charge.
- Be careful with your personal information. Most cash advance loan applications require access to your banking information in order to function. Make sure the company’s website and connections are secure and read their data privacy policies before sharing your information.
- Never pay an upfront fee. If a lender asks you to pay a fee before giving you money, don’t agree. Charging consumers with undisclosed upfront fees is illegal and scam sign.
- Budget accordingly. Always remember that early access to your money through a cash advance loan means your next paycheck will be smaller. While this type of loan can be useful if you find yourself in a small financial emergency before payday, you will need to plan ahead to make ends meet during your next pay period.
- Keep your documentation. BBB has received reports from consumers receive calls from collection agencies years after paying off a payday loan. Some calls were the result of human error, but others were attempts to scam consumers into money. Stay safe by keeping documents showing that your loans have been paid off in full.
- Consider alternatives to a loan. Cash advances can get very expensive, especially if you miss your repayment date. Consumer.gov recommends considering other ways to borrow money, including using your credit card, requesting a loan from family or friends, or inquiring about a loan from your bank or co-op credit. If you need a loan because you can’t pay one of your regular bills, try calling the company and asking for help. For example, many lenders and creditors help borrowers affected by COVID-19 by offering postponement of mortgages or credit card debt.