Before you consider applying for a payday loan, you should educate yourself about this financial innovation. Having more than one loan can potentially lead to financial issues that may require payday loan debt assistance.
What You Should Know About Payday Loans
What Are Payday Loans?
Usually marketed as a bridge between paychecks, payday loans refer to short-term cash loans for a small amount, usually around $500 or less. In some states, payday loans can be available online or through storefront payday lenders.
The due date is clearly stated in the payday loan agreement and is typically set two to four weeks from when the borrower took out the loan. However, payday loans are usually due for payment on the borrower’s next payday or when the borrower receives income from a pension, Social Security, or other sources.
Generally, the payday lender doesn’t consider the borrower’s ability to meet their other financial obligations while repaying the loan. However, they can structure the loan to make them repayable in installments over an extended period.
How Can the Borrower Repay and Receive the Loan?
Borrowers can repay the loan by writing a post-dated check for the full balance and the finance charge. They can also provide the lenders with authorization to electronically debit the funds from their bank accounts, prepaid card account, or credit union. In any case, the lenders are free to cash the check or electronically withdraw the money from the borrower’s bank if the borrower fails to repay the loan on or before the due date.
Likewise, borrowers can receive the loan proceeds by cash or check, which can be loaded on their prepaid debit card or electronically deposited into their bank account.
What Does the Option to Renew or Roll Over a Loan Mean?
Most payday loans are structured to be paid off in a single lump-sum payment on their due date. However, it’s important to note that some states allow payday lenders to give the borrowers the option to renew or roll over a loan when they couldn’t afford to pay them off when they’re due.
This option makes it possible for the borrower to pay only the fees due to delays in paying the loan. However, paying the fee doesn’t mean that the amount they owe is reduced. Although the lender agrees to extend the loan’s due date, the borrower still owes the principal amount, along with the fees for the roll over.
For example, if a person borrows $300 on a payday loan, they will owe $300 plus the $45 fee in two weeks. If they decide to roll over the loan, they can pay only the $45 fee. However, they’ll still have to repay the $300 they originally owed plus another $45 fee two weeks later.
Due to the rollover, the cost of the $300 loan has increased from $45 to $90. When the borrower rolls over the loan several times, they end pay hundreds of dollars in fees and still owe the original $300 loan they borrowed.
What Is the Cost of an Average Payday Loan?
Payday loans typically charge a dollar amount or a percentage per $500 borrowed. Depending on the state law and the maximum amount the state permits borrowers to borrow, this fee can be anywhere between $10 and $30 for every $100 borrowed. However, lenders usually charge a fee of $15 per $100.
It’s important to note that interest rates are disguised as fees. Since interest on payday loans can range from 300% to 1000%, these loans can have fees that translate to extremely high annual percentage rates or APRs.
Most borrowers can’t afford payday loans because the average payday loan requires a lump-sum repayment of $430 on the next payday. This amount consumes around 36% of an average borrower’s gross paycheck. As a result, most borrowers renew the loans.
Do You Need Payday Loan Debt Assistance?
Is your financial situation getting on top of you, and you are finding it difficult to manage? DebtHelper is here to give you a fresh start.
If you’re a Florida resident with a payday loan, we can help you get a 60-day deferment on your loan repayments under the State of Florida Payday Advance Law. If you’re not a Florida resident, we could negotiate with your payday lenders in setting up repayment plans of six months to a year. If you took out multiple payday loans, we could consolidate all of your loan payments into one lower monthly payment distributed to each of your lenders.
Moreover, our debt management program allows you to reduce the interest rate on a payday loan. After working with us, you can expect to pay a third of what you’re currently paying with 0% interest. Reduced interest makes it easy for you to quickly pay off your principal balance while saving thousands of dollars in finance charges.
With our help, you can make payments you can afford, and you won’t have to deal with harassing collection calls. Our team of professionals is ready to educate, advise, and empower you to handle your payment loan debt.
DebtHelper is a 501c3 nonprofit credit counseling service that exists to help your financial future. Contact us today to schedule your free consultation.