• Tue. Oct 4th, 2022

Payday loan companies are now using social media ads to entice young people into debt

ByJean A. Francis

Aug 17, 2022
  • Regina Morrison Newman is the Shelby County Trustee
  • Payday loans are not cheap money. A two-week payday loan with a $15 fee to borrow $100 results in an APR of nearly 400%

If you’ve ever needed extra cash to prepare for your next paycheck, you understand the appeal of a payday loan.

Now, video ads on places like TikTok are promoting small, short-term loans to a new, young audience — and making them look cheap and easy.

Remember that just because it looks simple doesn’t mean it is. Predatory payday lenders use social media platforms to make dishonest claims promising instant money with no credit checks, late fees or interest rates.

Often, these “lenders” circumvent the rules of the platform. TikTok and Meta have rules limiting ads for short-term/payday loans, but some have found their way.

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Here’s what you need to know before taking out a payday loan from a social media ad:

  • These ads may not call what they charge an “interest rate”, but what they charge is still what you have to pay, just like interest. Many lenders who advertise on TikTok try to circumvent regulations and interest rate laws in various states by creating new names for their service. By labeling their interest rates a “tip” or “fee”, lenders are hoping you won’t notice how much you’ll actually be paying. Keep in mind that responsible lenders will always be willing to disclose the annual percentage rate (APR) on their loans.
  • Payday loans are not cheap money. A two-week payday loan with a $15 fee to borrow $100 translates to an APR of nearly 400%, according to the Consumer Financial Protection Bureau. That’s a huge leap even compared to a high-interest credit card, which has rates around 30%.
  • Just because it’s easy to get one doesn’t mean a payday loan is a good idea. If you’re young or don’t have access to other types of credit, you’re an ideal target for a payday lender. Unscrupulous lenders promote the fact that you don’t need a credit check or documents to get a loan. However, this facility can come at a high cost. Before applying for a payday loan, spend time researching other options, especially if you have an account with a credit union. Many credit unions offer small dollar loans.
  • Not all social media ads are truthful. Payday lenders seen on TikTok can promise you instant cash. Remember previous wallet warnings if it sounds too good to be true, it probably is. Many companies like these have come under scrutiny for deceptive lending practices, and some may simply seek to gain access to your bank account. Don’t believe everything you see on social media ads without doing further research.
  • Make sure you can repay the loan within the original time frame. With such high interest rates and fees, many people find themselves stuck in an endless cycle of debt. You pay and pay the minimum which is only the fees/interest due. You end up never repaying the principal amount you borrowed. Plus, payday loans can ruin your credit if you find yourself unable to pay what you owe. They will report non-payment in the blink of an eye.
Regina Newman

As always, our goal with Wallet Warnings remains the same: to help you protect your money. If you have questions or need additional information on any topic covered here, please call (901) 222-0206. We are happy to help you avoid scams, frauds and predatory lenders.

Regina Morrison Newman is the Shelby County Trustee.