Pay Off Payday Loans

A payday loan, also called a cash advance, is a quick way to obtain a small sum of money (typically under $500) to pay bills or cover unexpected emergencies. The borrower will typically have to give the payday lender a check to deposit in order to receive the cash advance, or may be asked to link the lender directly to the borrower's checking account, with the assumption that the borrower will repay the loan on or after his next payday (hence the name).[1] If the borrower doesn't pay the lender, he risks additional fees or even a lawsuit or wage garnishment, if the lawsuit is successful. Knowing how to pay off payday loans may help you save money and avoid these financial and legal consequences.

Steps

Understanding Payday Loans

  1. Know what to expect. A payday loan can be a convenient way to borrow money, and the finance charge (that is, the cost of borrowing a loan from a payday lender) is often less than what a borrower might pay in overdraft fees from a bank if he overdrew from his checking account.[2] However, late fees are applied whenever the loan cannot be repaid, and rollover rates are applied whenever the loan term needs to be extended. The interest rate (also known as the APR, or annual percentage rate) on even a small, short-term payday loan often exceeds 400%[3], which can be difficult to pay back.
  2. Read the fine print. Some borrowers are surprised to learn that the terms of a given loan allow the payday lender to extend or renew the loan without the borrower's consent. This can cause borrowers to inadvertently accrue debt while thinking that the lender had simply withdrawn the sum that was owed.[4] Before you sign any type of financial agreement, understand the terms and conditions of the loan, and know what to expect from the start.
  3. Look for alternatives. While an interest-free credit card might be the best solution for short-term financial borrowing, that option may not be available to borrowers with poor credit or immediate needs.[2] However, there may be other alternatives and precautions that borrowers could explore.
    • A small loan from a credit union may have a lower interest rate than a payday lender.[5]
    • Comparing APR and other charges/fees may help you find a better deal.[5]
    • Military personnel may have government-backed protections to prevent high fees and interest rates.[5]
    • Your state may have protections in place that limit the rates lenders can charge.[5]
    • Try asking your creditor for an extension instead of taking out a payday loan. You may be able to work out a payment plan that works better for your budget.[5]

Paying Back Your Loan

  1. Ask questions. Your payday loan office may be able to help if you have any questions about their policies. It is important to have all of your information clarified from the start so that you do not accidentally forget to pay off your loan, as doing so could result in you getting charged a fee.
    • Know from the start whether your loan will be set up to automatically renew. Some loans renew automatically several times, and require the borrower to contact the lender prior to the first due date in order to set up a payment that will end the loan.[6]
    • Understand your lender's privacy policies. Make sure that your personal information is protected.[6]
    • Find out about any additional fees in advance. Some lenders charge additional fees for services such as electronically depositing your loan in your checking account, wiring funds to you, or giving you a prepaid debit card that contains your loan amount.[6]
    • Know how to contact your lender. Some payday loan companies operate entirely online. Find out how to contact your lender in case you have any questions or concerns about your loan.[6]
    • If you have given authorization to deduct funds directly from your checking account, you will need to know how much the lender will withdraw and when that sum will be withdrawn.[6]
  2. Make a budget. Having a responsible spending budget that is within the means of your income - and sticking to that budget - can help you avoid late fees and higher interest rates.[5]
    • Consider buying groceries to cook at home, rather than going out to eat before you need to pay off your loan.
    • Play games at home or rent a DVD rather than going out to the movies. This will allow you to spend time with your family without paying for theater admission and snack prices.
    • Go for a hike over the weekend rather than going to an expensive amusement park. Your family will still enjoy the quality time spent together, and will get fresh air and exercise as a reward!
  3. Plan to pay back the loan by your next payday. Hold off on any large purchases that are not essential. Use the money you borrowed only for the reason you took out the loan, and set aside enough of your next paycheck to pay back the loan you borrowed.
    • Make sure you have enough money in your bank account on the day your loan repayment is due.
    • Try to start a savings account for the future, in case you ever find yourself in need of a short-term loan again.

Finding Other Repayment Strategies

  1. Enter into an Extended Payment Plan (EPP). An EPP allows borrowers to extend the repayment period by several weeks without penalty. This can significantly ease some of the burden of typical payday loan repayment plans, as it allows the borrower to get his finances in order. Not all payday loan providers offer Extended Payment Plans, though, and there are certain restrictions on Extended Payment Plans that may be determined by the location of the initial payday loan office.[7]
    • Payday loan providers who are members of Community Financial Services Association of America (CFSA) are typically required to offer Extended Payment Plans to borrowers who are interested in this repayment strategy. Check with your loan provider to determine if they are members of CFSA.[7]
    • In states with adopted provisions governing EPPs on payday loans, the state-mandated extended payment option is offered in lieu of the CFSA's Extended Payment Plan.[7] Find out about your state's payday loan statutes by visiting the National Conference of State Legislatures website.
    • Borrowers who took out a payday loan through a CFSA lender must request the Extended Payment Plan by the end of business hours on the last business day before the loan's due date.[7]
    • To request the EPP, a borrower must return to the original office where his loan was given within the qualifying timeframe for requesting an EPP, inform the lender of his wish to enter an EPP, and sign an amendment to the original loan agreement that lays out the terms of the new payment schedule.[7]
    • CFSA Extended Payment Plans allow a borrower to pay off the loan in four equal payments on a timeline that reflects the borrower's pay date schedule.[7]
    • There is no fee for entering an EPP, but the lender may charge an EPP fee and accelerate the payment on the remaining balance if the borrower defaults on his Extended Payment Plan.[7]
  2. Consider rolling over your loan. Rollovers on payday loans are not always allowed, but in some places local and regional laws permit the rolling over of a payday loan. Rolling a loan over allows borrowers additional time to gather the funds needed to pay back the loan, though additional fees may apply. Borrowers are typically limited to four rollovers on a loan, or the borrower's state limit (whichever is less).[8]
  3. Consult with a credit counseling agency. Credit counseling agencies can help borrowers figure out ways to repay loans through a variety of strategies. Credit counseling agencies will help borrowers explore every option and may be able to help the borrower negotiate a settlement with the lender. Credit counseling agents may even be able to broker an arrangement that would allow the borrower to reduce his payments toward other debts until the payday loan is settled.[9]

Managing Your Loan

  1. Restrict the amount and terms of your loan. Lower borrowed sums, coupled with a shorter borrowing period, can greatly reduce the fees associated with payday loans. People who live in places with government-enacted payday loan limits have seen fee reductions that add up to millions of dollars saved. Even if you do not live in a place with government regulations on payday loans, you can still take steps to reduce the length of your loan payments.[3]
    • Limit the amount you borrow. Though many payday loans are capped at around $500, the interest rates can quickly add up to increased fees. Only borrow what you know you will be able to reasonably pay back with your next paycheck.[5]
    • Pay back the amount borrowed plus incurred fees as quickly as possible. Rolling over a loan, which means delaying the due date of your payment, will always accrue more debt. For this reason, many states have set limits or outright bans on rolling over payday loans.[5]
  2. Ensure your deductions are authorized. Though it is not particularly common, sometimes lenders make unauthorized deductions from a borrower's checking account. If you believe that your lender is withdrawing more than you authorized, let your bank or credit union know about the situation. Show a banker the loan agreement you signed with your lender and ask the banker what steps can be taken to prevent these deductions, if they are in fact unauthorized.[6]
    • In many countries, a borrower can withdraw his consent to allow lenders direct checking account withdrawals at any time. To do this you will need to say in no uncertain terms to your lender, "I am revoking my authorization to debit my account." These instructions should be sent in writing to the lender. You should also inform your bank or credit union of your intent to cancel authorization.[6]
  3. Find out if your state offers rate caps. In the United States, 17 states and the District of Columbia currently have double-digit interest rate caps enacted on payday loans. Many local municipalities have their own laws that restrict payday loan practices.[3]
    • Service members nationwide in the United States may not be charged an interest rate higher than 36%.[3]
  4. Work out an extended payment plan. You can do this by contacting your payday lender. If your lender is a member of the Community Financial Services Association of America (CFSA), they should provide lenders the option of setting up an extended payment plan, which can buy you time to pay back the loan without additional costs.[10]
  5. Contact your state's bank regulator. If you are having issues with your lender and believe the terms of your loan are unreasonable, you may be able to get valuable information from your state's banking and securities regulator. This information can easily be found online or in a phone book. For a quick listing of each state's banking offices, see the directory at http://www.teachmefinance.com/32-Payday-Loans-questions-and-answers.html.
    • Find out whether a payday lender is authorized to conduct business where you live. If the lender is not authorized, your loan may be illegal.[6]

Tips

  • You can avoid taking out payday loans by saving a small amount of money out of each paycheck for future emergencies.
  • Try giving your finances a trim so that you are left with more disposable income each month.
  • Payday loans are an expensive means of credit. If you believe you may ever fall into a situation where you find yourself taking out a payday loan, you may want to consider joining a credit union instead. Credit unions provide similar loans to payday loan companies at much cheaper rates.
  • You can ask a friend or family member to lend you the money to pay off the payday loans. However, you must still pay them back.

Warnings

  • If you decide to take a debt consolidation loan, understand that you're paying off the payday lenders with another loan. You will owe the money to the financial institution that paid the payday lender. You should also be aware that not all debt consolidation companies are legitimate and may have high interest rates or fees.
  • Don't extend payday loans more than two times. Doing so could quickly add up to interest payments that exceed the amount of your original loan.[2]

Related Articles

  • Pay Off Payday Loans
  • Not to Get Ripped off With a Payday Loan

Sources and Citations

  1. ↑ http://www.consumerfinance.gov/askcfpb/1567/what-payday-loan.html
  2. ↑ 2.0 2.1 2.2 http://www.theguardian.com/money/2013/jun/27/what-is-a-payday-loan
  3. ↑ 3.0 3.1 3.2 3.3 http://www.responsiblelending.org/payday-lending/?referrer=https://www.google.com/
  4. ↑ http://www.publicintegrity.org/2011/09/30/6811/trouble-online-payday-loan-you-might-not-have-repay-it
  5. ↑ 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 http://www.consumer.ftc.gov/articles/0097-payday-loans
  6. ↑ 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 http://www.teachmefinance.com/32-Payday-Loans-questions-and-answers.html
  7. ↑ 7.0 7.1 7.2 7.3 7.4 7.5 7.6 http://cfsaa.com/cfsa-member-best-practices/what-is-an-extended-payment-plan.aspx
  8. ↑ http://cfsaa.com/what-is-a-payday-advance/frequently-asked-questions.aspx
  9. ↑ http://blog.credit.com/2013/04/trapped-in-payday-loan-debt-how-to-escape/
  10. ↑ http://www.pbs.org/wnet/tavissmiley/a-wealth-of-knowledge/cant-pay-back-my-payday-loans/
Retrieved from "https://kipkis.com/index.php?title=Pay_Off_Payday_Loans&oldid=275496"