Most of us have experienced the stressful situation of being short on cash and not knowing where to turn for assistance. Perhaps you’ve been hit with an unexpected car repair bill or had to pay for an emergency medical procedure. Whatever the circumstance, when you’re strapped for cash, you may be considering taking out a payday loan.
But before taking one out, it’s crucial to understand how they work and what can happen if you can’t repay the loan on time. This understanding will help you better decide if a payday loan is right for you or not.
What a Payday Loan Is
If it’s your first time hearing about a payday loan, you may be wondering what it is. A payday loan is a short-term loan intended to tide you over until your next paycheck. It’s also called cash advances or check loans, which typically range from $50 to $1,000 only, as it’s meant to be a stopgap measure to help you get by until you get paid again.
But because they’re short-term loans, they usually come with higher interest rates compared to other types of loans. For example, personal loans typically have a repayment period of one to five years. In contrast, you must repay a payday loan in two to four weeks. But like payday loans, you can find personal loans from various sources, such as CreditNinja.com.
Since payday loans are such high-risk loans, many states have laws that regulate them. That includes capping interest rates, limiting how often you can take them out, and prohibiting lenders from rolling them over into a new loan. So before you take out a payday loan, be sure to check your state’s laws.
Repaying Your Loan
Unlike other loans, you typically have to repay a payday loan within 2-4 weeks. And if you can’t repay the loan on time, you may have to pay late fees or roll over the loan into a new one.
If you do end up having to roll over the loan, you’ll pay even more in fees and interest. That’s because of it’s payday loan. From the name itself, you’re expected to repay the loan on your next payday.
Payday Loan Industry Statistics
Given that payday loans are due so soon after taking them out, it’s not surprising that many people can’t repay them on time. In fact, 6% of payday loan borrowers end up defaulting on their loan, according to a payday loan statistics report.
When you default on a payday loan, the lender will try to collect the debt from you. They may do this by garnishing your wages or withdrawing money from your bank account. If they cannot collect the debt, they may sell it to a collections agency. That way, you may pay even more in fees and interest.
Defaulting on a payday loan can also negatively impact your credit score. So if you’re already struggling with bad credit, impulsively taking out a payday loan may not be the best idea.
Failing to Repay a Payday Loan
Defaulting or being unable to repay a payday loan can have serious consequences. Not only will you pay more in fees and interest, but you may also damage your credit score or even get sued by the lender.
You can also be subject to wage garnishment, which is when the lender withdraws money from your paycheck to repay the debt. And if the lender sells your debt to a collections agency, they may continue to contact you about repayment.
So if you’re struggling to repay your payday loan, it’s vital to take action as soon as possible. You can start by contacting your lender and try to work out a repayment plan. If that doesn’t work, you may need help from a credit counseling or debt relief service.
Ways to Repay Payday Loans Debt
While it’s not easy to repay payday loan debt with high-interest rates, it is possible. You can start by creating a budget and looking for ways to cut back on your expenses. For example, you may need to cut back on eating out or luxuries like shopping.
You can also try to make extra money by picking up a part-time job or selling some of your belongings. And if you’re really struggling, you can get help from a credit counseling or debt relief service. Just remember that it’s crucial to take action as soon as possible to avoid defaulting on your loan. Defaulting can have serious consequences, like wage garnishment, damage to your credit score, and even getting sued by the lender.
Final Thoughts
Payday loans can be a helpful way to get by when you’re short on cash. But remember that they’re a high-risk loan, so be sure only to take one out if you’re confident you can repay it on time. Also, don’t forget to check your state’s laws on payday loans, as they can vary from state to state. That way, you’ll stay within the legal limits and avoid getting into trouble.
