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BBB tips: Consider alternatives before applying for payday loans 

MILWAUKEE — 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, the Better Business Bureau (BBB) says 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.

A news release from the BBB says 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.

Before taking on a payday loan, BBB recommends you consider these alternatives:

  • Payment Plan. Try to make your current situation more manageable by renegotiating your current debts with payment plans. Some banks, credit unions, cell phone companies, and mortgage and student loan providers, for example, are pushing back bill due dates to help their customers.
  • Personal Loans from a bank or credit union will be a cheaper alternative. Consider both online and brick-and-mortar institutions, but be wary of online loan scammers who promise loans for upfront fees and then never provide the loan. Check out the companies first at
  • Credit card cash advance. Relying on a credit card cash advance is never a cheap option, though it’s likely to be better than a payday loan. Most issuers will charge a percentage of the advance as a fee, usually around 5%, with a minimum of $5 to $10.
  • Paycheck advance. Some companies have employee assistance programs that can help employees in need.
    Credit counseling. If your financial situation is out of control, consumer credit counseling can be a great resource to help you analyze your debt, define a realistic, personalized budget and negotiate lower interest rates and lower monthly payments.
  • 401(k) loan. You may also consider borrowing from your own retirement or 401(k) account. According to Investopedia, four reasons to borrow from your 401(k) include speed and convenience, repayment flexibility, cost advantage, and potential benefits to your retirement savings in a down market. As long as you repay the loan on schedule (including interest) and follow all the requirements of the loan, you shouldn’t incur any taxes or penalties.

If you must use a payday loan, BBB has this advice:

  • All loan companies are not the same. Check out the company’s BBB Business Profile on to see its rating, history of complaints and other information.
  • Never pay an upfront fee. Some short-term loan providers will 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 will tack on fees the whole time. This can result in you owing several times what you borrowed in the first place.
  • Know your rights. Payday lenders are required to disclose certain information before initiating a loan. That information includes the cost, the interest rate to be paid, and the specific fees that will be paid.
    Read the fine print. Pay close attention to fees and consequences of non-payment. Will the company allow you to make arrangements if you cannot pay?
  • Keep your documentation. Many consumers said they started receiving calls from collections 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 and the FTC.
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