Payday loans are a great option to consider your short-term financial needs. Repayments should be made within 2-4 weeks, as they are usually shorter than traditional bank loans. However, if you can’t afford to repay your payday loan in one lump sum, you can consider renewing or rolling over your loan.
Loan rollovers are common to avoid delinquent payments and payday loan defaults. Over 80% of payday loans will be rolled over or another loan will follow within 14 days. (Consumer Financial Protection Bureau)
What if I can’t repay my payday loan?
If you do not repay the loan on time:
- If the account does not have enough money on the
- due date, the payday loan lender will charge a fee. The bank will also charge an overdraft fee if the check is returned.
- Loan defaults have a negative impact on your credit score. This negative statement can remain in the credit report for 7 to 10 years. This will reduce your chances of renting in the future.
- In the future, if you get a loan with a low credit score, you will be asked to pay a higher interest rate. Paying a higher interest rate means you pay more money over the life of the loan, which can have a negative impact on your budget.
- The loan collection will be sent to the debt collector. The debt collector will contact you and ask for payment to repay the full amount of the loan.
How to avoid payday loan defaults
The following options are useful when you are struggling to repay your payday loan.
1. Extend your loan
Many payday loan borrowers who are unable to repay their payday loans extend their loans. All you need to do is sign an amendment to your loan agreement with new interest rates and new terms. This will take weeks to repay the payday loan.
2. Ask the lender for a payment plan
Before the loan expires, you need to notify the lender that you cannot repay the loan on time. Talk to your lender about payday loan integration. You can propose a monthly payment plan or an installment payment plan.
If the lender offers an installment plan and you can repay the loan amount with that plan, make sure to pay on time to avoid further risk. You don’t have to pay the lender anything to register for installments.
3. Consider using a personal loan
You can use your personal loan to repay your payday loan. Then you can focus on paying off your personal loan on a schedule that works for you. Personal loans have a long term, so you can repay the loan amount for several months.
If you have a payday loan, consider how to repay it to avoid the default.
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