Payday loans are often a financial disaster to start with. These loans have extremely high interest rates and are designed to trap borrowers in a cycle of debt. Payday loan scams target these vulnerable borrowers, who are often already under deep financial stress.

Payday loans are often the only loans available to people with bad credit or no credit. Borrowers use them because they are desperate: they have run out of money and their paycheck isn’t going to arrive soon enough. They have little choice but to accept the predatory terms offered by payday lenders.

People in this position are often not financially sophisticated and make ideal targets for scammers. If you have a payday loan or have used payday loans before, you could be a target.

Here’s what you need to know.

How Scammers Get Your Name

Scammers use the information they get from payday lenders. Sometimes this involves hacking, but many payday lenders sell information to marketing partners, and once information is out there it can end up anywhere. Some payday lenders may even sell data direct to scammers.

If your account details are compromised, scammers may use inside knowledge to sound like legit company representatives or debt collectors.

Let’s look at how these scams are presented, how they can be detected, and how you can protect yourself.

Signs of Stolen Information

You may have used a legitimate lender at one time, and then hackers stole your information and sold it (or the lender sold it). That type of personal data makes it much easier for scammers to convince victims that they may have forgotten to make a payment on a payday loan.

The scammer who bought the information may contact you by pretending to represent the original loan company. They will then try to convince you that you still owe money, which, in fact, you already paid.

If you receive an email, check the return address. If it is from a or account instead of a company email, beware. Most legitimate businesses don’t send messages from a Gmail or Yahoo account. A legitimate loan company would use a company email address. The Better Business Bureau recommends that if you do see what looks like a company email address, check the spelling. Scammers will often slightly misspell an email address to make it look legitimate.

If you get a phone call, call the company back on a number that you know (if you no longer have loan records, do an internet search) and ask if the call is legit.

Check Their Required Payment Methods

If a payday loan company asks for payment through apps or gift cards, beware. Whether you are asked to pay fees or make payments on your debt, fraudsters may ask for a payment in a form that makes it tough to get the funds back. This can include gift cards, apps like Venmo, or wire transfers through places like Western Union.

Look for Posers Claiming They Are Lawyers

Scammers will use names that resemble law firms to intimidate consumers. They will pose as debt collectors and try to bluff you into making payments on debts you have already paid.

Ask for written confirmation of the debt. Any debt collector must provide you with a written validation notice containing essential information about the debt within five days of their first contact with you. Refuse to speak to any debt collector who will not provide a validation notice.

📚 Learn how to deal with debt collectors.

Don’t Give Out Personal Information

Scammers may ask you for bank account numbers or Social Security numbers, saying they need these to deposit or receive money from you. They are trying to steal your cash and sell your data. No legitimate company would ask for this information via phone or email.

Stand Up to Threats

If the person threatens you, you have a scammer communicating with you.

Watch for these threats:

  • You are going to jail
  • You will be blacklisted for jobs
  • Banks will not deal with you
  • Your Social Security payments will be stopped
  • Your wages will be garnished

Payday lenders and debt collectors cannot legally do any of these things. They don’t have legal authority. The scammer is trying to scare you into taking hasty action, like sending money.

Don’t “Return” Money Deposited in Your Account

Be on the alert if you are asked to return a deposit that was made in your bank account. Some fraudsters will claim they are confirming your bank information by sending you such a deposit. The catch is they want you to return it, and that return request is your red flag.

👉 The scam works like this:

The company that “sent” the money provides you with a copy of a (fake) deposit slip to “confirm” your bank account is working correctly. Other scammers may make a deposit into your account and then contact you, saying it was an error. 

They ask for a return of the money. If you send them the same amount as listed on the fraudulent deposit slip or your bank record, you have lost your money. The deposit was never made. Even if you see it in your account, that only means the deposit is pending. The bank will catch the error, but only after you have sent the money to the scammer. 

👉 Tip: Legitimate companies do send test deposits to make sure your bank information is accurate. The difference is that their deposits are usually $1 or less, and you don’t send them back. They disappear eventually.

Beware When They Call With an Offer

Be suspicious of a payday loan representative that calls you. A legitimate payday loan company does not call consumers to offer a loan. If a company initiates a loan offer over the telephone or online, do your research.

✍️ Note: The BBB’s Scam Tracker site is a searchable database of the reported scams, so checking a business name there is a good first step.

One red flag to watch for is when the call comes from a restricted number. Your phone may display the caller information as “Unknown”. A legitimate company won’t hide its contact number.

Only do business with a lender if you initiate the contact.

Don’t Pay an Upfront Fee 

Legitimate lenders will not demand a commission or an amount of money upfront to “guarantee” the loan. Instead, expenses and interest should be deducted from the loan amount or charged to repay the loan. Similarly, if the caller wants you to pay for “insurance” to secure the loan, you are talking to a scammer.  

Don’t Feel Ashamed

Many people get scammed, so don’t let embarrassment paralyze you and keep you from taking action. Annually, the United States sees s much as $4 million in losses to payday loan scammers.

Don’t take the blame; take responsibility. That means reporting the scammer and finding alternate ways to raise funds.

How to Report a Scam

👊 When it’s time to fight back, take command of the situation. Report the company:

👉 Tip: You can tell the fraudulent payday loan company you are reporting them. This may get them to back off and stop overcharging you.

Alternatives to Payday Loans

A payday loan can be considered a scam in its own right. These loans become very expensive very quickly, and most borrowers regret taking them out. These alternatives may help if you are considering a payday loan or if you’re already in the payday loan trap.

Advances on Your Paycheck

Your employer may be willing to pay you before your paycheck is scheduled to go to you. This can happen when you have already worked the days you will be paid for. For example, if you have worked a week of the current pay period, your boss may pay you for that week in advance. That amount will be deducted from your next paycheck. Note that this is not a loan, and you won’t pay interest in most cases.

Borrowing From Your Family and Friends

This is the quickest and least expensive method to raise cash. Even if they charge you interest, it will be much lower than a payday loan company would charge. Still, you should write and sign an agreement to make it official so that no one misunderstands the terms. Include how long the loan is for and the total dollar amount you will pay back (not just the interest rate).

Create a Debt Management Plan

Nonprofit credit counseling agencies provide free credit counseling services. They may recommend a debt management plan, which is a form of debt consolidation. You pay the agency, which then pays the creditors. This means you will pay one monthly payment instead of making several payments to all of your creditors. The service will also negotiate with your creditors to get you better deals. You will pay a monthly fee for this service.

Debt Settlement Companies

The problem in paying back your payday loan may be that you have too many other debts, such as credit cards, additional loans, and medical bills. You may be able to reduce your payments to those creditors by negotiating. Note that debt settlement companies are for-profit organizations. Just make sure the cost of dealing with them is worth the debt reduction you will get.

👉 Tip: Your credit score will be hurt whether you use a nonprofit or for-profit company to negotiate your debts.

Payday Alternative Loans

Community Banks or Credit Unions often offer these loans, which are designed to help their depositors or members avoid or escape the payday loan trap.

These are typically small loans, similar to payday loans but without the predatory terms. Check with your bank or credit union.

💡 Tip: While credit unions have traditionally been restricted to specific areas or groups, there are now credit unions that anyone can join.

Calculate “Legitimate” Payday Loan Interest Rates

Even if a payday loan company hasn’t been investigated or cited, fees and interest rates are usually exorbitant. Interest rates on a payday loan can range from 400% to 600%.

👉 For Example

Here’s how people get fooled. Let’s say that a borrower is taking out a $400 loan with a finance charge of 20%. The actual interest paid is calculated by multiplying the loan amount by the interest charge ($400 x .20 = $80).

But there’s a catch. That’s the charge for a week or two. It is not an annual rate. The annual percentage rate comes from 391% to 521%.

According to The Consumer Financial Protection Bureau, most payday loans don’t get paid back in two weeks. The bureau says 80% of loans get renewed because the borrower can’t make the payment. In that case, you continue to pay interest on the balance, and there may be fees for each renewal. Your debt is getting larger. You can end up paying back five times what you borrowed.

Here is an example:
Loan Amount$400
Finance Charge $80
Loan Term2 Weeks
Annual Percentage Rate521.43%
Total You Repay if The Loan Renews
Every Two Weeks for a Year

You can find free online calculators to find the exact numbers for your payday loan.

Always ask what the annual percentage rate is.

👉 Tip: It is illegal for a payday loan company to change the terms of your agreement after you have received the loan money. This includes adding fees that are not in your original contract. 

👉 Check the maximum APR and term of payday loans in your state.


The best way to avoid payday loan scams is to avoid payday loans in the first place. They are almost always a bad idea, and many lenders are less than reputable. At best you will face high interest rates and predatory terms. At worst, your data may end up in the hands of a scammer.

If you are using payday loans or you’ve used them in the past, there’s a good chance that your personal data are circulating and could end up with a scammer. Know the signs of a scam, be wary, and assert your rights!

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