GREEN BAY, WI (WTAQ) – As people are strapped for cash during difficult times – some may consider payday loans, which can often land consumers in trouble.
Payday loans are legal in Wisconsin, and companies can charge any interest rates they want. Susan Bach of the Better Business Bureau says it shouldn’t be your first option.
“Payday loans are meant to be a short-term loan. But they come with incredibly high interest – sometimes as much as 400% annual percentage rate,” Bach tells WTAQ News, “Once the fees and interest rates are added, they find out that they’re paying often double or even triple the principal. So they can’t afford that and end up rolling over the loan – and then just getting trapped in a cycle of debt.”
Instead of the high-risk potential wielded in most payday loan deals, Bach recommends talking with your creditors and bank to see what fair deals can be done.
“The first thing that we would recommend is that you try and make your current situation more manageable by renegotiating your current debt…Getting a credit card cash advance, going to a traditional bank or credit union to get a short term loan – those will most definitely be cheaper sources of cash for a consumer right now,” Bach says, “[companies] are pushing back bill due dates just to help their customers in these trying times.”
Relying on a credit card cash advance is never a cheap option, though it’s likely to be better than a payday loan. Most issuers will charge a percentage of the advance as a fee, usually around 5%, with a minimum of $5 to $10.
If your financial situation is out of control, consumer credit counseling can be a great resource to help you analyze your debt, define a realistic, personalized budget and negotiate lower interest rates and lower monthly payments.
But for those who must resort to a payday loan, the BBB offers up a few tips.
“Pay very close attention to their disclosures. That payday loan company needs to be very transparent about the cost, the interest rates to be paid, and specific fees that will accompany that loan,” Bach says, “It’s up to the consumer really to read the fine print and make sure they’re aware of what the final payment and payout will be.”
But the BBB also reminds consumers that all loan companies are not the same. Check out the company’s Business Profile on BBB.org to see its rating, history of complaints and other information.
It’s also recommended to never pay upfront fees – simply because charging undisclosed upfront fees is illegal.
Bach also says to only borrow what you can pay off with your first paycheck. Most companies will allow you to “rollover” the balance for several weeks or months, but will tack on fees the whole time.
Anyone taking such a loan should also keep their documentation to protect themselves from collections agencies or scammers.
If you feel a lender has committed fraud or taken advantage of you, file a complaint with BBB and the FTC.
