According to a report by the Consumer Financial Protection Bureau, over 80 percent of payday loans are rolled over or followed by another loan within 14 days. This shows a worrying pattern as many borrowers are getting trapped in a cycle of debt, increasingly unable to pay off their initial loan. With the high interest rates and short repayment periods associated with payday loans, many borrowers worry whether these loans are difficult to pay back.
Are Payday Loans Easy To Pay Back?
In standard cases, payday loans can be relatively easy to pay back. Payday loans are designed for borrowers who are in need of a quick injection of cash to pay for an emergency expense which cannot wait until their next payday. Once they receive their next paycheck, they are then able to pay back the loan and interest with ease through the automatic payments that are set up via their bank account.
However, payday loans can potentially be very difficult to pay back, due to the high interest rates and fees that many payday loans come with. This can be especially difficult for people who are already struggling financially.
For some, the fees and charges might add up too quickly and make it difficult to keep up with payments. This is why it is essential to make sure you can comfortably afford the repayments before agreeing to go ahead with your loan.
Why Can Payday Loans Be Difficult To Pay Back?
There are several reasons why payday loans can be difficult to pay back, including:
- The high interest rates and fees: These additional charges can make the total owed much higher than the initial loan amount. This is why it is so important to ensure you get a good deal and read the fine print.
- Short term: Payday loans tend to be due within a few weeks or months. For people living paycheck to paycheck this can be extremely difficult to keep up with, and they may end up incurring late fees.
- Unscrupulous lending: Some unscrupulous payday lenders encourage borrowers to take out more than they can afford. They may even encourage borrowers to take out additional loans to pay off their existing debt, causing a debt cycle. This scenario can be avoided by choosing your lender wisely.
Can I Extend The Repayment Period For A Payday Loan?
This depends on your lender. Some payday lenders allow borrowers to extend the repayment period, but this usually comes at the cost of additional fees or interest.
Extending your payday loan can make the loan even more expensive and difficult to pay back. Read the terms and conditions of a payday loan carefully before taking it out, and make sure to only borrow what you can afford to repay.
What Should I Do If I Can’t Repay A Payday Loan?
If you can’t repay a payday loan, you should contact the lender immediately to avoid damage to your credit score. You will be given an opportunity to discuss your options.
Some lenders may be willing to draw up a flexible payment plan or extend the repayment period, potentially at a high cost. Other lenders may temporarily freeze the interest on your loan or alternatively, they may refer you to a debt counselor or collection agency.
Are There Alternatives To Payday Loans?
Yes, there are several alternatives to payday loans, including:
- Personal loans from banks or credit unions
- Credit card cash advances
- Family and friend loans
These options tend to have lower fees and lower interest rates which can make them easier to pay back. There is also the option to get installment loans which tends to have a longer repayment period of 2 to 5 years. However, each option comes with its own advantages and disadvantages, so make sure you read the terms of your contract carefully.
What Happens If I Default On A Payday Loan?
If you default on a payday loan, your lender can take legal action to collect the debt. They might file a lawsuit or refer the debt to a collection agency. This can result in additional fees, interest, and damage to your credit score, so you should try your best to discuss a payment plan with your lender before the situation escalates this much.
In some cases, the lender may also garnish your wages or seize your property to pay off the debt. However, these cases tend to be extreme.
How Can I Avoid The Cycle Of Debt With Payday Loans?
To avoid the cycle of debt with payday loans, make sure to only borrow what you can afford to repay. When taking out your loan it is absolutely crucial to only borrow within your means and to have a plan in place to repay the loan on time. This may include creating a budget, dipping into savings, cutting expenses, taking on more shifts or selling unwanted possessions through a garage sale or via online platforms such as eBay.
If you are struggling to repay a payday loan, you can prevent a debt spiral by seeking help as soon as possible through a credit counseling agency or financial advisor.
Are Payday Loans Regulated By The Government?
Yes, payday loans are regulated by both state and federal laws, which vary by location. These laws can limit the interest rates and fees that lenders are allowed to charge. They may also set minimum and maximum loan amounts and loan terms, and require lenders to disclose certain information to borrowers, such as the total cost of the loan and the repayment period.
Some payday loan laws and regulations are mentioned in the table below:
|States||Loan Amount||Loan Term|
|California||Up to $300||Up to 31 days|
|Colorado||Up to $500||Up to 180 days|
|Illinois||Up to $1000 or 25% of gross monthly income||13-120 days|
|Indiana||$50-$550||At least 14 days|
|Iowa||Up to $500||Up to 31 days|
|Kentucky||Up to $500||14-60 days|
|Louisiana||Up to $350||Up to 30 days|
|New Hampshire||Up to $500||7-30 days|
|Ohio||Up to $1000||91-365 days|
|South Carolina||Up to $550||Up to 31 days|
|Tennessee||Up to $500||Up to 31 days|
Can I Use A Credit Card To Pay Off A Payday Loan?
Yes you can use a credit card to pay off a payday loan, but it is rarely advisable. Credit cards typically have higher interest rates than other forms of financing, so they may not be the most cost-effective way to pay off a payday loan. Remember to carefully compare the costs and terms of your options before making a decision.
Justine is a full-time writer with lots of expertise and a wealth of experience in the financial world. In particular, she specializes in household income and consumer finance across the United States. Follow her articles for useful advice and top tips, guides on how to save money and lots more.