It has been a tough few years for many Americans. Unfortunately, trying to stretch every dollar to buy the necessities has become the norm. Some might look into a second or third job to pay the bills.
This is precisely the type of person that payday loans are targeting. Promising quick cash without telling the whole story of the loan costs, these advertisements have been popping up on social media platforms like TikTok.
Read on to find out how these companies skirt the rules and why taking a payday loan is bad.
Here’s the backstory
All social media platforms have advertising, as it’s a primary way to bring in a profit. But some sites aren’t as strict about ad content as others. For example, TikTok claims to have a policy against “exaggerated performance or promise.”
Yet, there are plenty of payday loan posts that target vulnerable users. According to Media Matters for America, three companies consistently violate TikTok’s advertising policies by promoting payday loans.
By promising instant money, the posts from Earnin, Brigit and Albert target those who need cash in a hurry with wording such as “living from paycheck to paycheck” or being always “broke.” It is unclear how the advertising is allowed to be on the platform.
But Earnin is no stranger to controversy. The company settled a $12.5 million lawsuit over deceitful 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 you can do about it
It might 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 don’t call it that often. Some advertising will use words such as “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 annual percentage rate of 400%. That’s far higher than the typical 30% of a high-interest credit card.
That can leave you in a debt cycle, but according to the BBB, there are safer alternatives to payday 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 needing a loan in the first place. Then, set aside cash each month to build up an emergency fund. You will be covered even if an unexpected expense or emergency comes up.
- Get credit counseling. Get credit counseling if you find yourself unable to pay your bills or are caught in a debt cycle due to a high-interest loan. The U.S. Department of Justice has a list of agencies for people looking for debt reduction assistance. Also, check out BBB’s tip on credit counseling for more resources.
- Shop around for loans. Compare interest rates, charges, and late fees by reading the fine print before choosing a lender. Pay close attention to interest rates and loan rollover fees. Credit unions are an excellent place to take out a small loan with reasonable interest rates. Even credit card cash advances, which usually have interest rates in the double digits, likely have lower interest rates than what a payday lender will offer.
- 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 devise a payment plan you can afford.