Post from Community: BBB Tips: Consider alternatives before applying for payday loans | Milwaukee Neighborhood News Service
Wisconsin Better Business Bureau
April 27, 2020
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With so many people strapped for cash because of the COVID-19 pandemic, some may be considering payday loans, which are short-term loans that come with exceedingly high-interest rates. Unfortunately, many payday borrowers find themselves unable to repay the principal, fees and interest at the end of the loan period so they renew the loan, incurring even more fees and interest and trapping themselves into a cycle of debt.
One consumer from Waukesha complained to the BBB, “I applied for a $1000 loan to help pay our October rent as we received a 5-day move out notice. I was under the impression that I would be able to pay it back in a few months. I didn’t realize they were charging me 319.42%. I didn’t even think that was possible. It shows I have to pay $1832.97 finance charges. That is unheard of.  My total to pay back over the next 9 months would be $2832.97. Almost triple my loan! I now am unemployed looking for a job, have 5 small children, and have a new 5-day move out notice for November.”
Wisconsin has no cap on annual interest rates for payday loans, which can be more than 500% APR. In addition, although borrowers can only renew a payday loan twice, there is no limit on the number of different payday loans a borrower can have. In the past 12 months, BBB has processed almost 2500 complaints against payday lenders nationally – 50 from Wisconsinites — mostly from consumers complaining about high-interest rates.
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“Payday loans are meant to help consumers in a pinch,” said Jim Temmer, president/CEO of the Better Business Bureau Serving Wisconsin. “Unfortunately, once they get caught in that cycle of borrowing and being unable to repay, it’s very difficult to get out of it. If consumers are looking for a quick, one-time loan to help pay bills, their best bet is to look for other options.”
Before taking on a payday loan, BBB recommends you consider these alternatives:
If you must use a payday loan, BBB has this advice: