A reader: I’m recently divorced and have been having trouble making ends meet. I’m waiting for child support payments to come in. So, I’m thinking about getting a payday loan. There are lots of offers online. Is this a good idea?
Action Line: You may be tempted by some of the ads you are seeing, but before you click on anything check on the reputation of the company with BBB at bbb.org. And the Federal Trade Commission (FTC) has these tips for you:
It’s important to shop and compare available offers before you decide to take out an online payday loan.
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1. Shop for the credit offer with the lowest cost. Try to find out the annual percentage rate (APR) and the finance charge (including loan fees and interest, among other credit costs) of different options before you select a credit offer. You are looking for the lowest APR. If you are shopping online and can’t find the APR and the finance charge, visit lenders in person.
2. Consider a small loan from a credit union. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans, as well. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds. Find out the terms before you decide.
3. Ask for more time. Contact your creditors or loan servicer as quickly as possible if you are having trouble making a payment. Many may be willing to work with you if they believe you are acting in good faith. They may offer an extension on your bills: Find out what the charges are for that service. There could be a late charge, an additional finance charge, or a higher interest rate.
4. Make a realistic budget, including your monthly and daily expenditures, and plan, plan, plan. Try to avoid unnecessary purchases: The costs of small, every day items like a cup of coffee add up. At the same time, try to build some savings: Small deposits do help. A savings plan – however modest – can help you avoid borrowing for emergencies. Saving the fee on a $300 payday loan for six months, for example, can help you create a buffer against financial emergencies.
5. Find out if you have – or if your bank will offer you – overdraft protection on your checking account. If you are using most or all the funds in your account regularly and you make a mistake in your account records, overdraft protection can help protect you from further credit problems. Find out the terms of the overdraft protection available to you – both what it costs and what it covers. Some banks offer “bounce protection,” which may cover individual overdrafts from checks or electronic withdrawals, generally for a fee. It can be costly, and may not guarantee that the bank automatically will pay the overdraft.
Action Line is written by Blair Looney, president and CEO for the Better Business Bureau serving Central California. Send your consumer concerns, questions and problems to Action Line at the Better Business Bureau, 2600 W. Shaw Lane, Fresno, CA 93711 or firstname.lastname@example.org.