Payday loans are now available online, making it convenient for those who need a few extra dollars until their next paycheck.
But some companies have found ways of taking advantage of those most financially vulnerable Americans.
The Better Business Bureau said this week that consumers should proceed with caution when using a payday lending app.
Here are some of the tips provided by the Better Business Bureau:
- Understand how cash advance loan apps work. TheCollegeInvestor.com defines cash advance loan apps as, “apps that allow you to deposit money that you’ve already earned into your checking account before payday.” Some cash advance apps work based on earned wages by partnering with employers, while others work directly with consumers. After calculating your current earnings, apps grant you a small loan. The amount of your loan is then deducted from your next paycheck. Some apps require monthly membership fees. Others charge fixed fees for loans or allow you to make voluntary “tips.”
- Get to know the lender. If you decide to use an app to get a cash advance, look up the financing company on BBB.org first. Make sure the company has a reputation for honest business practices. In addition, ConsumerFinance.gov recommends finding out if the lender is licensed by your state, which means better protection for you as well.
- Read the terms carefully. Take your time reading the terms of the loan carefully. Be sure to understand when the loan must be repaid and how much you will owe if you don’t pay on time.
- Find out about fees. Be suspicious of cash advance apps that claim to be totally free. That means there are usually hidden fees and costs, warns NextAdvisor. Fees may be disguised under other names – including “tips,” “donations,” “membership fees,” or “premium account access.” Find out what you’ll pay and be aware that fees that seem small can add up over time. For example, Nerd Wallet points out that paying $2 to withdraw $20 for two weeks comes out to an annual percentage rate of 260%. That’s comparable to what traditional payday lenders charge.
- Be careful with your personal information. Most cash advance loan apps need access to your banking information to work. Make sure the company’s website and connections are secure and read their data privacy policies before sharing your information.
- Never pay upfront fees. If a lender asks you to pay fees before giving you any money, don’t agree. Charging consumers undisclosed upfront fees is illegal and a sign of a scam.
- Budget accordingly. Always remember that getting early access to your money through a cash advance loan means your next paycheck will be smaller. While this kind of loan can be helpful if you find yourself in a small financial emergency before payday, you’ll need to plan ahead to make ends meet during your next pay period.
- Keep your documentation. BBB has received reports of consumers getting calls from collections agencies years after they repaid a payday loan. Some calls were a result of human error, but others were attempts to scam consumers out of money. Stay safe by keeping documentation that states your loans were paid in full.
- Consider alternatives to a loan. Cash advance loans can become very expensive, especially if you miss your repayment date. Consumer.gov recommends considering other ways to borrow money, including using your credit card, asking family or friends for a loan, or inquiring about a loan at your bank or credit union. If you need a loan because you are unable to pay one of your regular bills, try calling the company and asking for assistance. For example, many lenders and creditors are helping borrowers affected by COVID-19 by offering deferment on mortgage loans or credit card debt.