Anyone seeking short-term financing to pay their bills that fall due before their next paycheck may understand the occasional need for a payday loan. In this way, video ads on platforms such as TikTok are helping the new and young generation access short-term loans cheaply and easily.
While the process may seem rather straightforward, it has some complexities. Specifically, predatory payday lenders have used the social media platform to exploit unsuspecting debt seekers by luring them with ‘attractive’ lending terms such as instant cash advancement with no credit checks, interest rates, or late fees.
Certainly, TikTok and Meta have enforced clear guidelines that limit ads for short-term/payday loans. However, advertisers have managed to find loopholes and bend the rules of these media platforms. Below, we have provided key information you need to know before taking out a payday loan from an ad on social media.
More Information On Payday Loans As Advertised On Social Media
Many apps prefer not to label it “interest rate,” which is exactly what it is. Lenders that advertise on TikTok attempt to bypass the rules by changing the name they give to their service. They refer to the interest rate as a “fee” or a “tip” to stop you from correctly calculating the amount of interest you will pay by the end of the loan period. Always remember that ethical lenders are very clear on their loans’ Annual Percentage Rate (APR).
In the end, payday loans are expensive. Data from Consumer Financial Protection Bureau shows that borrowing $100 for two weeks through a payday loan equals an Annual Percentage Rate (APR) of nearly 400%. This figure is quite staggering, even compared to high-interest rate credit cards that have interest rates of around 30%.
Simply because you can access payday loans easily does not make them the right option, particularly if you are young and have no alternative form of credit available – making you the ideal target of these lenders.
Untrustworthy lenders propagate that you do not require a credit check or any paperwork to access a loan. To some extent, this might be true, but the loan will come at a high cost to compensate for the fact that such a borrower is a risky debtor. For this reason, we recommend that you explore all your options before you go for a payday loan.
You cannot trust every ad on social media. Payday lenders promise instant cash; however, if it seems too good to be authentic, it is not a good deal. Many financial players, including regulators, have criticized such companies for their dishonest lending procedures and numerous attempts to access your bank account. Be wary of the ads you see on social media and avoid signing up before conducting research and sufficient background checks. Payday loan companies use social media and also more organic means such as advertorials and payday loan guest posts to advertise.
Ensure your finances can pay back the loan. Exposure to high-interest rates has condemned many borrowers to life in a debt cycle. Additionally, you must repay your payday loan to maintain your credit rating.
It is always helpful to understand the local laws that apply to payday loans; in many parts, payday loans are illegal or highly regulated. Therefore, ensure you know the laws relevant to payday lending in the U.S. – you can seek this information from your state’s consumer protection agency or Attorney General’s office. To begin with, confirm if the loan terms on offer are legal in your state. In most provinces in Canada, payday lenders must have a license to operate in the country; to learn more on this, read the Financial Consumer Agency’s information on payday loans.
Better Options For Payday Loans
Create a budget for your emergency needs. Having a budget to monitor your income and determine how much you need to spend on your bills is always helpful. To begin with, a good budget is the best hack to avoid needing a loan. In addition, allocate some money in your budget towards your emergency kitty to pay for the expenses that pop up unexpectedly.
Seek professional credit advice: Always look for professional credit counseling if you need to catch up on your bills and get out of debt because of the high interest on the loans. The U.S. Department of Justice has provided a list of agencies that help debtors with debt reduction advice. If you are in Canada, you can view the list of Canadian nonprofit credit counseling agencies here. If you need more resources, look at BBB’s tip on credit counselling.
If you must take a loan, explore all your alternatives. Consider different lenders, and compare their lending terms, such as interest rates, late fees, and loan charges, before you commit to any lender. Read all the fine print and pay special attention on loan rollover costs and interest rates.
You will find that credit card cash advances, which ordinarily have double-digit interest rates, will likely have a lower interest rate than a payday lender offer.
Call your lender if you are unable to pay on time. If you think you cannot manage to pay a certain amount on time, stay calm and call the creditor directly. Most creditors are ready to collaborate with you to develop a payment plan that suits your current financial position.