Payday loans are sometimes harder to repay than a traditional loan, because the lender didn't verify your ability to repay before lending you money. Payday lenders generally don't assess your debt-to-income ratio or take into account your other debts before granting you a loan. Payday loans come with exorbitant interest rates and fees that often make it very difficult to repay them. If you can't repay a payday loan, the account may be sent to a collection agency, damaging your credit.
Some payday lenders may try to cash the check several times. Each time the check bounces, the bank will charge you an overdraft fee. With such high interest and fees on payday loans, it can be nearly impossible to make payments and keep living on a budget. The good news is that you may have options to lower your payments.
Compare payday loan interest rates of 391%-600% to the average rate for alternative options such as credit cards (15%-30%), debt management programs (8%-10%), personal loans (14%-35%), and online loans (10%-35%). These loans are a little more complicated to apply for, but they have much lower interest rates than payday loans. It is illegal for a payday lender to threaten to put you in jail or criminally prosecute you for an unpaid debt. Payday loans are a quick fix for consumers in a financial crisis, but they are also budget-breaking expenses for families and individuals.
If you are automatically deducting payday loan money from your bank account, ask the bank to stop the automatic deduction. If the borrower's status allows, the borrower only pays the charges due and the loan is extended. If you can get a personal loan, you can significantly reduce the interest rate and borrowing costs you pay compared to payday loans. They could use a payday loan to cover rent and avoid eviction or utility bills to avoid outages, but huge interest payments usually leave them in a worse state.
Customers can use payday loans to cover emergencies, such as doctor visits or car problems, but most use the loans to cover utilities, rent, or other recurring monthly bills. There's no denying that defaulting on a payday loan can bring you a lot of stress and uncertainty about the future. If you have your social security benefits or VA payments deposited directly into a bank account that a payday lender has your permission to access (through your check or authorization), you can redirect where your automatic deposits are made. Once you apply for a loan with a payday loan, the high fees and short repayment term associated with your loan can sometimes make it difficult to stop borrowing.
Payday lenders require borrowers to write a check for the amount of a loan plus a fee that the lender withholds. It's possible to pay more on your loans if you can work more or sell additional items to get more money.