Today we can pay back a friend via text, send money overseas with just a few clicks or apply for a credit card without ever talking to a real person.
While these advances may promise convenience, it’s important to understand which financial offerings actually improve our lives, and which ones to steer clear of.
If you’re applying for an immediate payday loan, then you’re probably in dire need of cash - and ASAP. Most lenders know this too, and unfortunately, often take advantage of your situation by charging an incredibly high interest rate AND a myriad of other fees.
The Consumer Finance Protection Bureau (CFPB) research recently found the APR on payday loans sits at about 400%! (Remember, unlike the interest rate, an APR includes other fees as well as the interest rate.)
Most payday lenders charge borrowers per $100 borrowed. At 400% APR, borrowers can expect to pay $15 just on interest per $100. That means if you’re borrowing $2,000, you’ll end up spending $300 just on interest. By comparison, credit card APRs usually sit at between 12 and 30%.
If you need cash fast, here are some better alternatives to payday loans.
Advance Loan Fees
Run away from any loan that guarantees approval. By law, lenders are not to promise borrowers approval “regardless of credit history.”
Advance loan fee scams involving guaranteeing approval as a way to receive money from “application or processing” fees charged to the loan applicant, or access to the applicant’s bank account or Social Security number. A reputable lender may offer advice as to whether a loan may be right for you, but they won’t make any guarantees and they won’t charge hefty, up-front fees.
Many timeshare owners made the leap to own their little slice of paradise in an emotional, impulsive state – likely on vacation after a lengthy sales pitch. One researcher even found that 85% of timeshare buyers regret their purchase. Unfortunately, most timeshare commitments are very difficult for owners to exit - some even pass timeshares on to owners’ children or require very expensive payouts to opt out.
As a result, timeshare resale, or “buyback” companies are cropping up. While some resale companies are legitimate and do help owners rid themselves of their timeshares, others are nothing short of a scam.
How does it work? After you agree on a buyback price, the scammer may charge you a fee and run, or simply drag out the “litigation” - meanwhile you’re still under legal ownership of the vacation property.
How can you avoid a timeshare scam? Do your research before making any commitments or payments – ask friends what they’ve used or check the company with the Better Business Bureau.
Prepaid Debit Cards
Prepaid debit cards offer consumers the opportunity to deposit money on a prepaid card, promising easier and quicker access to funds and the chance to avoid the “hassle” of opening a bank account.
Unfortunately this convenience can come at a steep price. Prepaid cards almost always come with a variety of unique fees, including paying to use an ATM, reload the card, activate it, or a monthly maintenance fee. Plus, if you loose the card, it can be difficult to recoup the funds.
Bankrate.com offers a helpful article about prepaid debit pros and cons. If you’re looking for a simple way to manage your money, check out our Simple Checking account – only $100 to open, no monthly maintenance fee and a free debit card.
Sweepstake, or Lottery, "Winnings"
Got a letter claiming you’ve won a sweepstakes or lottery that you don’t remember winning? Report it immediately to the U.S. Postal Service!
Fraudsters notify unsuspecting victims of “winnings,” and then ask recipients to wire or send a check for a “processing fee” before they can receive their payout – which never comes. If it sounds too good to be true…
Check out our “Don’t Fall for Sweepstakes Scam” post about for more information.
Some wire scams are easy to spot, like the old Nigerian Prince trick, others are more challenging to identify. Scammers scour Facebook and Instagram for travellers, find and contact the traveler’s relatives with a claim that their loved one is in trouble. Fraudsters then ask the unsuspecting relative for money to assist with the tourist’s hospital bill, jail bond or even ransom.
How can you be sure a cry for help isn’t the real deal? Reach out directly to the individual via email, Facebook message, or at their hotel, or ask other friends/family the last time they heard from the traveller before you send money.
Don’t be fooled by the “f” word. Many consumers will opt for a credit card with a higher interest rate simply because it’s being advertised with one year interest free – ultimately costing the borrower much more money in the long run.