John North, Dayton Better Business Bureau president. CONTRIBUTED

Payday loans lenders have odds in their favor

In the midst of the holidays, sometimes you don’t know how to pay for it all. Payday loans may seem like a good option, but these can be a risky idea. Finding a good lender, knowing the right questions to ask and knowing what to look out for can be difficult.

What exactly is a payday loan? They’re short-term, high-cost loans made in exchange for a commitment to repayment from the person’s next paycheck. Usually, you write a personal check payable to the lender in the amount you wish to borrow and the lender holds the check until your next payday and then deposits the amount you borrowed plus interest and fees. Additional fees are added if you wish to extend the term of the loan, adding new fees for each extension. If the borrower chooses an internet payday lender, the loan is applied for online and the funds are delivered and collected through electronic fund transfers between the lender and the borrower’s bank account. The loan is based on electronic access to the borrower’s bank account.

These lenders target people who have little or no savings and live paycheck to paycheck. They often put consumers deeper into debt and some make unauthorized withdrawals from your bank account.

BBB offers these tips to help you steer clear of payday loan scams:

• Use a payday loan only if absolutely necessary. Borrow the smallest amount possible that you know you can pay back with your next paycheck.

• Find the best deal. Compare terms and fees of different lenders.

• Determine how you can contact the company. Be wary if you’re only provided an e-mail address. It can be advantageous to deal with a business with a physical location, so you can talk to someone face-to-face.

• Check for a license. Contact the Department of Financial Institutions in your state. Inquire if any complaints have been made against the lender. Untrustworthy lenders will often operate unlicensed or outside of the U.S.

• Don’t send money in advance. Disreputable services will ask you to send money to cover the cost of taxes or application processing. Legitimate payday loan companies will collect fees when your payment comes due.

• Read the fine print and watch for hidden fees. Ask questions, get everything in writing and make sure you understand all the terms. Lenders who make payday loans are required to disclose, in writing, the annual percentage rate (APR) and finance charges for the loan. If there are any blank forms or they tell you that you cannot have copies of the documents you signed, then avoid doing business with them.

If you need a loan, consider using a local financial institution, an advance on payroll from your employer or turn to a family member or friend for a loan. For more information, go online to www.bbb.org or call 937-222-5825 or 800-776-5301 for a list of BBB Accredited Businesses and Business Profiles on specific companies you’re considering.

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John North is president of the Dayton Better Business Bureau.

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