Chicago, IL-September 4, 2012 – As the new
school year begins, many people find themselves in need of fast cash and
consider payday loans as an option. Payday loans offer customers the
opportunity to access cash quickly without being subjected to detailed credit checks;
however they are charged very high interest rates. While many borrowers believe
they can pay off the loans quickly, the Better Business Bureau (BBB) warns that
payday loans may have long-lasting and devastating effects. The BBB has seen a
91% rise in inquiries for payday loans in the past twelve months, which shows
that consumers seem to be taking more caution before signing onto a loan.
“It is
extremely important to understand the terms of the payday loan and make sure it
is plausible to pay back,” said Steve J. Bernas, president & CEO of the
Better Business Bureau serving Chicago and Northern Illinois. “Many times the interest rates are so
high that customers fall into a cycle of debt.
“The 91% increase
of inquiries shows that consumers are using the BBB’s free services to research
companies before doing business with them,” Bernas added. “This is exactly what
we want consumers to do, and then make informed decisions.”
A typical
payday loan follows this type of pattern: a customer agrees to a loan for a few
hundred dollars to be paid off in a few weeks. Bank account information is
supplied to the lender and the money is promptly deposited. The consumer’s
subsequent payments go toward paying off recurring finance charges and never
toward the principal. As a result, the customer can pay two and three times the
amount of the original loan and still has the same amount of principal to pay
off. Many customers find themselves worse off after experiencing this pattern.
When
looking for a payday loan online the BBB recommends
the following:
- Look for the red flags. Unscrupulous online lenders
often wave the same red flags, including not being forthcoming about their
location or contact information. Also, be cautious of any lender that
doesn’t ask you for any background information outside of your bank
account number.
- Research the lender with the BBB. Always check an online
payday lender’s Business Review before you hand over any bank account
information. BBB Business Reviews are available for free online. They tell
you how many complaints the BBB has received, how the company responded to
complaints and the BBB’s overall letter-grade rating.
- Know regulations in Illinois. Payday loans can be
extremely expensive if you are unable to pay the loan off quickly, and in
some states payday loans are unregulated. Under a law passed in March 21,
2011 there are more strict laws regulating
payday loans in Illinois. Even with the new regulations, these are
still high risk loans and it is important to look at all different options
before investing.
- Look thoroughly at the contract before signing. As with any business
transaction, be sure to read all agreements, guarantees, and instructions
before signing. Do not be pressured into signing an agreement before you
are ready and you understand all terms and conditions. Make sure all oral
promises are put in writing. Be wary of vaguely worded provisions,
exclusions or limitations which could pose a problem later. Never sign a
contract with sections left blank.
For more
consumer tips, visit www.bbb.org
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As
a private, non-profit organization, the purpose of the Better Business Bureau
is to promote an ethical marketplace. BBBs help resolve buyer/seller complaints
by means of conciliation, mediation and arbitration. BBBs also review
advertising claims, online business practices and charitable organizations.
BBBs develop and issue reports on businesses and nonprofit organizations and
encourage people to check out a company or charity before making a purchase or
donation.
