Business Bulletin: When and How to Use a Payday Lender and Other Personal Financial Advice
Q: The coronavirus pandemic is currently creating a sensitive source of anxiety for personal finances. What suggestions and advice can BBB provide regarding personal finance at this time? As worries mount, sadly, can the risk of inflicting long-term damage to your credit score do the same?
A: Excellent question and your concerns are shared with many. Now more than ever, it’s important for consumers to know their options and take the steps available to manage their debt. Lenders are creating many additional opportunities to help borrowers who are currently experiencing financial difficulties. Many offer forbearance, loan extensions, reduced interest rates, or other forms of flexibility.
Going forward with any of these repayment options should only be done if proper precautions are taken. For one thing, make sure you get written documentation of any arrangements made with your financial institution. Confirm that these repayment efforts are reflected in your credit reports. Monitoring of these reports can be done free of charge through each of the three major credit bureaus.
First, be proactive in recognizing debt problems. Communication is key in managing debt and finding support. Managing debt safely and fairly should be a priority for every consumer, especially right now, and avoiding the stress debt collectors can bring. The Better Business Bureau recommends these tips to protect your credit:
Get things done the “written” way. In addition to providing documentation of any repayment arrangement, debt collectors are legally required to provide a written “validation notice” of the debt. The notice should detail the amount of debt owed, the name of the creditor and the notice of the borrower’s rights.
Dig into the details. Scammers surface whenever consumers need help. As the pandemic continues, an increasing number of bad actors will pose as debt collectors so they can steal valuable personal information. Spotting these scams can be as simple as asking for details like their name, company, address and phone number. Legitimate debt collectors will have answers to all questions regarding an account.
Know what is free versus what is paid. The only legitimate website that offers a truly free credit report through all three major credit bureaus is AnnualCreditReport.com. This site provides consumer credit information on a weekly basis. Other sites claiming to offer “free” reports may end up including some type of fee deep in the fine print. Use these sites at your own risk.
Report any wrongdoing. If you believe a debt collector acted unfairly or failed to comply with specified legal requirements, report your experience to BBB.org. Other points of complaint include the Tennessee and Georgia State Attorney General’s Office, the Federal Trade Commission, and the Consumer Financial Protection Bureau. Sharing your experience can prevent others from having the same problem.
In a crisis, are payday loans an option?
As people try to find ways to make ends meet during the coronavirus pandemic, maybe some are looking for ways to ease their financial stress? The BBB warns that people should consider alternatives to payday loans. Payday loans are short-term loans with high interest rates. In some areas, there is no cap on annual interest rates for payday loans, which could be over 300% APR.
Before applying for a payday loan, the BBB suggests the following:
Payment plan: Try to make your current situation more manageable by renegotiating your current debts with payment plans.
Personal loans from a bank or credit union: They will be a cheaper alternative.
Cash advance on credit card: Relying on a credit card cash advance is never a cheap option, although it’s probably 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-$10.
Payday advance : Some companies have employee assistance programs that can help employees in need.
Credit advice: If your financial situation is out of control, Consumer Credit Counseling can help you analyze your debt.
401(k) loan: You can also consider borrowing from your own retirement account or 401(k). As long as you repay the loan on time (including interest) and meet all loan requirements, you should not incur any taxes or penalties. There are new rules for borrowing funds during this pandemic crisis from your 401K.
If you must use a payday loan, BBB has this advice:
Not all loan companies are created equal: View the company’s BBB business profile to see its rating, complaint history, and other information.
Never pay upfront fees: Some short-term lenders will ask for a post-dated check to cover the amount borrowed plus interest and fees. However, if a lender asks for these fees in cash before giving you money, walk away.
Limit the amount you borrow: Borrow only what you know you can repay with your first paycheck
Know your rights: Payday lenders are required to disclose certain information before taking out a loan. This information includes the cost, the interest rate to be paid and the specific fees that will be paid.
Read the fine print: Pay particular attention to the fees and consequences of non-payment.
Keep your documentation: Many consumers said they started getting calls from collection agencies years after paying off a payday loan. Some of these calls were simple errors; others were attempts by scammers to collect a debt that is not due. Protect yourself by having documentation showing that all loans have been repaid in full.
Know where to turn: If you think a lender has cheated or taken advantage of you, file a complaint with BBB, www.bbb.org and the FTC, www.ftc.gov. Find tips and information to help business owners and consumers during the coronavirus pandemic are available at www.bbb.org/coronavirus.
Jim Winsett is president of the Better Business Bureau in Chattanooga