A payday loan gives you money quickly. It’s a great help in an emergency, when you are short of cash but have to cover for an unexpected situation. The cash advance is usually for a small amount (between $300 and $2000) and it’s for a maximum of a few weeks (till your next payday). However, in spite of this, some people have problems in repaying their payday loan, just as is the case with any other type of loan.
There can be additional fees when you default and legal consequences as well. Knowing how best to pay off the payday loan is thus going to help you immensely.
Understanding the Payday Loan
- What you can expect – Payday loans are among the most convenient ways of borrowing money. Yes, there is a charge, but it is less than what you have to pay as the overdraft fee to the bank for overdrawing money from your checking account. But, a late fee will be applied if you cannot repay on time, and there will also be rollover rates if the loan term has to be extended. The total amount due as interest can shoot up if you keep the loan repaid for a long time, making it even more difficult for you to pay back.
- Read the fine print – There are some lenders who renew or extend the unpaid loan with a borrower’s consent. It is included in the terms when you take the loan. So read the terms and conditions carefully before you sign any document.
Paying Back the Loan
Do not hesitate to ask the lender if you have any question about the policy. Get all the clarifications you need right at the start so that there is no confusion about when and how to pay back the loan.
- You need to know whether the loan will renew automatically. There are loans that renew automatically and set a new payment date, unless you tell the lender specifically to end your loan.
- Understand the privacy policies of your lender. Ensure that your personal information is always protected.
- Learn about the additional fees before taking the loan. There are lenders who will charge fees for depositing the amount to your bank electronically.
- Find out how best to contact the lender. There are payday lenders who are entirely online. Also, ask about the response time.
- If you authorized the lender to deduct the amount due directly from your bank account, you should know the precise amount that will be withdrawn, and the date when this withdrawal will happen.
Create a Budget
Create a responsible budget within your income. This will give you more fiscal control and help you pay back the loan on time. You can avoid the late fees and interest rates.
- Buy groceries so you can cook at home, instead of eating out.
- Watch movies or sports on television, instead of going out to see a movie and spending money on the ticket and snacks.
- Spend quality time at home with the kids. Play a game with them, instead of taking them to the “kid’s zone” at the shopping mall.
- Go on a hiking or camping trip on the weekend, instead of burning money at the expensive amusement park. You will get exercise and fresh air.
Pay It Back After the Next Payday
Don’t make any big purchase, particularly if it is not essential, while you are in debt. Use the borrowed money only for the purpose you took it for. Also, make it your top priority to pay back the loan after the paycheck.
- Ensure that there is adequate money in the bank on the day the repayment is due.
- Start an emergency funds account for the future so that you can use the money in case a situation comes up.
Other Repayment Strategies
- The EPP or “Extended Payment Plan” – Ask your lender about the EPP in case you cannot repay the payday loan on time. After approval, your repayment period will be extended by many weeks, and that too without any penalty. This will give you critical time to get your finances in order. However, not all payday lenders will allow the EPP. Also, there are some restrictions on the plan.
- Only payday lenders who are members of the CFSA or the Community Financial Services Association of America can offer the EPP to their borrowers. Check to find whether your lender is a CFSA member.
- In states where the EPP governing provisions have been adopted, it is mandatory to offer this option. Go to the National Conference of State Legislatures website to find out the status of your state.
- If you have taken the payday loan from a CFSA-member payday business, you will have to furnish your request for the EPP at least a day before the repayment amount is due.
- You have to make the request at the office where it was issued, and will also have to sign an amendment of the original loan agreement. This new agreement will list out all the new terms of the EPP plan, including the new payment schedule.
- The Extended Payment Plan allows borrowers to pay off their loan in four equal payments.
- There are no fees for entering into the EPP. But lenders can charge an EPP fee and also accelerate payment for the balance remaining if you default.
Rolling Over the Loan
Payday loan rollovers aren’t allowed always. However, in some places, regional and local laws allow this. By rolling over your payday loan, you will have additional time to find the money to pay off your debt. But remember, there can be additional fees. Borrowers are limited to four loan rollovers, or the limits imposed by your state.
Get the Help of a Credit Counseling Agency
These agencies can help you find ways of repaying loans. There can be many strategies. They will help you explore multiple options, and even negotiate a settlement with your lender. Sometimes, these agencies can broker agreements with other creditors, if you have other loans too, so that their payments can be lowered till the time you have paid back your payday debt completely.
You can find a credit counseling agency close to you at the National Foundation for Credit Counseling website.
Managing the Payday Loan
- Restrict the terms and amount of loan – A lower amount borrowed and for a shorter time can reduce your burden greatly. Here’s what you can do:
- Limit the borrowed amount – Yes, you are perhaps in an emergency and need the funds. But try to borrow only what you need, and can pay back with the next paycheck.
- Pay back the borrowed amount and the fees as quickly as you can. By rolling over the loan or delaying your due date, you will only add more debt. This is why many states have banned rolling over or have imposed limits on this.
Make Sure That the Deductions Are Authorized
It is rare, but sometimes, a few lenders make unauthorized deductions from the checking accounts of borrowers. Inform your credit union or bank if you think your lender is withdrawing money without your authorization. Show your signed loan agreement with the lender, and ask for the steps that can be taken to stop this.
Does Your State Allow Rate Caps?
17 states, plus the District of Columbia has rate caps in the United States presently. Many municipalities have their own laws too. So you cannot be charged more than the allowing limit in these states.
Contact the Bank Regulator in Your State
If you believe that your loan terms are unreasonable and you are having issues with the lender, you may also contact the banking and securities regulator of your state. You will find this information easily in the phone book or the internet. Also, find out whether the lender is authorized to do business in your area. Your loan is illegal if the business is not authorized.
Most payday lenders are valid businesses that offer a valuable service to the society. But there are a few you need to be careful about. Most importantly, however, you have to be careful about managing your money and paying back the debt in time. By doing this you will save money. It is good for the lender too, because the business then has the funds to make loans to others in emergencies or facing a financial crisis.
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