When your bills exceed your income, you can easily find yourself strapped for cash. Borrowing to pay off your bills may seem like your only option, but it's a strategy that can just put you further behind, especially if you opt for a payday or title loan.
Missouri is among the states with laws considered favorable to payday lenders, which means they can charge interest rates that quickly run into the triple digits. Many people who use these loans find themselves paying much more than they originally borrowed and may just get further and further behind on their debts.
A 2013 study by the Consumer Financial Protection Bureau shows payday loans' interest rates averaged 339-400 percent in Missouri. In some cases, rates exceeded 1,000 percent.
Payday lenders tend to 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. What most borrowers don't realize is the high interest rates on these loans can trap them in a debt cycle that forces them to renew the loan repeatedly, paying associated fees every two weeks until they can finally save enough to pay off the principal and get out of debt.
Before you decide to take out a payday loan, consider alternatives such as small bank loans, credit counseling and credit cards. For those without these options, Better Business Bureau offers the following tips:
Start with trust. Check out a lender's BBB Business Review to see its rating, history of complaints and other information.
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 - especially if it's an online lender asking for money via wire transfer. Charging undisclosed upfront fees is illegal, and cash sent by wire cannot be traced.
Limit the amount you borrow. Only borrow what you know you can pay off with your first paycheck. Most companies will allow you to roll over the balance for several weeks or months, but they tack on fees each time you roll it over. This can result in you owing several times what you borrowed in the first place.
Read the fine print. Pay close attention to fees and consequences of nonpayment. Will the company allow you to make arrangements if you cannot pay?
Keep your documentation. Many consumers said they started receiving calls from collection agencies years after they paid off a payday loan. Some of these calls were simple errors; others were attempts by scammers to collect a debt that is not owed. Protect yourself by having documentation that all loans were paid in full.
Know where to turn. If you feel a lender has committed fraud or taken advantage of you, file a complaint with BBB, the Federal Trade Commission and the Missouri Attorney General's office.
Remember, you can always check a company's BBB Business Review at www.bbb.org or by calling 573-886-8965.
Sean Spence is the Mid-Missouri regional director for Better Business Bureau.