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Pay Attention to Payday Loan Terms

Many cash-strapped consumers may find themselves in need of a small loan to pay off their holiday purchases. While payday lenders may seem like an easy way to get cash fast, for many, it ends up being a burden. BBB encourages consumers to pay close attention – many payday lenders charge high interest rates, set unaffordable payment terms and use high-pressure collection tactics – making these debts impossible to pay off.

Payday loans are small loans subject to state regulation. In the US, thirteen (13) states have banned payday lending and several others have restrictions on the interest rate or associated fees. Traditionally, states cap small loan rates and require installment repayment schedules be given to borrowers, according to the Consumer Federation of America.

Texas is one of few states that does not have any statewide regulations on payday loans. Individual cities have enacted their own ordinances to keep interest rates down for consumers.

“Some payday lenders target people whose credit may not be good enough to obtain a credit card or bank loan and who therefore rely on advance short-term loans to get by”, said Mechele Agbayani Mills, President and CEO of BBB Serving Central East Texas. “Often, people take these loans in desperate circumstances without realizing these high interest rates come with fees and may trap them in a cycle of debt.”

Before you borrow, your BBB offers the following advice:

Start with trust. Check out a lender’s BBB Business Review to see its rating, history of complaints, ad-related issues and consumer reviews.

Consider another loan source. Consider banks and credit unions who offer short-term loans for small amounts at competitive rates. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds. In any case, weigh all your options first and compare all available offers.

Never pay an upfront fee. Some short-term lenders ask for a post-dated check to cover the amount you borrowed, plus interest and fees. However, if any lender asks for those fees in cash before giving you any money, walk away. Charging undisclosed upfront fees is illegal according to the Federal Truth in Lending Act (TILA).

Limit the amount you borrow. Only borrow what you know you can pay off with your first paycheck. If you allow your balance to roll over for several weeks or months, the company may tack on fees each time which can result in you owing several times more than what you borrowed in the first place.

Read the fine print. Pay close attention to fees and consequences of nonpayment. According to TILA, lenders must disclose the cost of the loan. Payday lenders must give you the finance charge (a dollar amount) and the annual percentage rate in writing before you sign for the loan.

Keep your documentation. Protect yourself by having documentation that all loans were paid in full, as there may be attempts by scammers to collect a debt that is not owed.

For more tips on how to be a savvy consumer, go to To report fraudulent activity or unscrupulous business practices, please call the BBB Hotline: (903) 581-5888, and remember to Look for the Seal.