The past few years have been difficult for many Americans. Unfortunately, trying to stretch every dollar to buy basic necessities has become the norm. Some might consider a second or third job to pay the bills.
This is precisely the type of person that payday loans target. Promising quick cash without telling the full story of loan costs, these ads have been popping up on social media platforms like TikTok.
Read on to find out how these companies are bending the rules and why taking a payday loan is bad.
Here is the backstory
All social media platforms have advertising as it is the main way to generate 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 promises”.
Yet, there are many payday loan messages that target vulnerable users. According to Media Matters for Americathree companies systematically violate TikTok’s advertising policies by promoting payday loans.
Promising instant cash, posts by Earnin, Brigit and Albert target those in need of quick cash with phrasing such as “living paycheck to paycheck” or always being “broke”. It is unclear how advertising is allowed to be on the platform.
But Earnin is no stranger to controversy. The company settled a $12.5 million lawsuit three years ago for deceptive lending practices. Brigit and Albert are also not registered with the Better Business Bureau (BBB), as some users claimed there were unexpected charges or missing deposits.
What can you do about it
It may seem like a lucrative opportunity to get some cash in your wallet fast, but there will always be a catch. The interest rate will be exorbitant, and they don’t call it often. Some advertisements 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 way more than the typical 30% for a high-interest credit card.
It may leave you in a cycle of debt, but according to the BBBthere are safer alternatives to payday loans:
- Build a budget with an emergency fund. Create a budget so you know how much money you receive and how much you need to pay your bills. This will help avoid needing a loan in the first place. Then set aside money each month to build an emergency fund. You will be covered even if an unexpected expense or emergency occurs.
- Get credit advice. Get credit counseling if you find yourself unable to pay your bills or caught in a cycle of debt due to a high-interest loan. The US Department of Justice has a list of agencies for people looking for debt reduction help. Also see BBB’s advice on credit counseling for more resources.
- Shop 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 rollover fees. Credit unions are a great place to get a small loan with reasonable interest rates. Even credit card cash advances, which typically have double-digit interest rates, likely have lower interest rates than those offered by a payday lender.
- Contact your creditors if you cannot 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 you can afford.
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