Those were tough years for many Americans. Unfortunately, it has become the norm to gamble every dollar to buy essentials. Some may be looking for a second or third job to help pay the bills.
This is exactly the type of person that payday loans are aimed at. These ads, which promise a quick buck without telling the full story of the cost of borrowing, have popped up on social media platforms like TikTok.
Read on to find out how these companies are getting around the rules and why taking out a payday loan is a bad thing.
Here’s the backstory
All social media platforms have advertisements as it is a primary way to generate profits. But some websites are not as strict as others when it comes to ad content. For example, TikTok claims to have a policy against “overachievement or promises.”
Still, there are many payday loan sites that target at-risk users. According to Media Matters for AmericaThree companies are consistently violating TikTok’s advertising policies by promoting payday loans.
By promising instant cash, Earnin, Brigit and Albert’s posts target those in a hurry with phrases like “living from paycheck to paycheck” or “always broke.” It is unclear how the advertising may be on the platform.
But Earnin is no stranger to controversy. The company settled a $12.5 million lawsuit three years ago alleging fraudulent lending practices. Brigit and Albert aren’t registered with the Better Business Bureau (BBB) either, as some users have claimed unexpected charges 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’s always going to be a catch. The interest rate will be exorbitant, and they don’t mention it that often. Some ads 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 for borrowing $100 earns you an APR of 400%. That’s far more than the typical 30% on a high-yield credit card.
However, this can lead you into a cycle of debt according to BBBThere are safer alternatives to payday loans:
- Develop a budget with an emergency fund. Create a budget so you know how much money you’re taking in and how much you need to pay bills. In this way you avoid a loan from the outset. Then set aside cash each month to build an emergency fund. You are also covered when unexpected expenses or emergencies arise.
- Get credit advice. Get credit counseling if you can’t pay your bills or find yourself stuck in debt on a high-interest loan. That US Department of Justice has a list of agencies for people looking for debt reduction help. Check out BBB’s tip too Credit advice for more resources.
- Look for credit. 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 an excellent place to go for a small loan with low interest rates. Even credit card cash advances, which typically have interest rates in the double digits, are likely to have lower interest rates than what a payday lender will offer.
- Contact creditors if you cannot pay on time. If you find you can’t make a payment on time, don’t panic. Contact the creditor directly. Many creditors are willing to work with you to develop a payment plan that you can afford.
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