CHICAGO, IL – February 2, 2012
-Distressed consumers, worried about paying bills or buying food for their families, are turning to payday loans for fast cash.
While many borrowers believe they can pay off the loans quickly, the Better Business Bureau serving Chicago and northern Illinois (BBB) warns payday loans may have long-lasting and devastating effects.
Obtaining a payday loan can be very expensive. Driven by the need for quick cash the borrower will generally write a personal check for the amount they want to borrow plus a fee charged by the lender. The fee may vary, but as a rule of thumb it is a percentage of the face value of the amount borrowed.
Once the consumer makes out the post-dated check, the lender will provide the cash amount of the money borrowed and wait until the consumer’s next payday to deposit the check. The problems begin when the consumer is unable to pay off the debt and must extend the loan. These roll-overs come with a very expensive fee for extending the debt often ending with the borrower paying interest rates as high as 400%.
“Consumers should be extremely cautious when considering loans either from an online business or a neighborhood loan office,” said Steve J. Bernas, President & CEO of the Better Business Bureau serving Chicago and northern Illinois. “Payday loans can trap borrowers in a revolving door of debt that can be difficult to escape. When borrowers discover their loan repayments leave them unable to meet their bills, they are forced to take out additional payday loans.”
The BBB offers these tips for consumers considering taking out a payday loan:
- See if your bank or credit union offers short term loans.
- Contact your creditors or loan Service Company as quickly as possible if you are having trouble with payments. Ask if you can have more time.
- Use a credit card for emergencies. Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, which includes loan fees, interest and other credit costs. Find out if you can delay paying a bill which has no interest charges, and make payment arrangements with the company.
- If you do take out a payday loan, read the agreement thoroughly and make sure you understand it. Know exactly when the loan payment is due, how the money will be collected and how much your payments will total.
For more consumer tips you can trust from your BBB, visit www.bbb.org