Paying Back a Payday Loan: Deadlines, Options, and Consequences

Understanding Your Repayment Terms and Due Dates

A payday loan is designed to be repaid in a single payment, typically on your next payday. The due date is usually set for the date you receive your next paycheck, but the exact term can vary by lender and state law. Before you sign, the lender should explain when the payment is due and the total amount you will owe, including any finance charges.

The total amount due includes the principal (the amount you borrowed) plus a finance charge. If you don't have the full amount on that date, you may be offered options like a rollover, which can add more fees.

• Due dates are typically tied to your payday, but confirm the exact date with your lender.
• The payment amount includes the principal plus any fees or finance charges.
• Some states limit the term length and the size of the finance charge.

Sources: Consumer Financial Protection Bureau

How Lenders Collect Payment: ACH, Post-Dated Checks, and Debit

Payday lenders commonly use one of three methods to collect payment on the due date: an automatic withdrawal from your checking account (ACH), a post-dated check you provide at the time of the loan, or a debit authorization against your bank account. Each method has implications if you don't have sufficient funds.

If you use an ACH authorization, you have the right under federal law (Regulation E) to revoke that authorization. You can contact your bank and follow their procedures to stop the automatic withdrawal. However, stopping payment does not cancel the debt; you still owe the lender, and you may be charged fees for a returned payment.

• Automatic withdrawal (ACH): The lender debits your account on the due date.
• Post-dated check: The lender deposits the check on the due date.
• Debit authorization: Similar to ACH, the lender uses your debit card information.
• You can revoke an ACH authorization, but the loan is still owed.

Sources: Consumer Financial Protection Bureau

What Happens If You Can't Repay on Time?

If you cannot repay the loan on the due date, you have a few options, but they often come with additional costs. One common option is to roll over or renew the loan. This means you pay a fee to delay repaying the loan, but that fee does not reduce the amount you owe. In effect, you still owe the original principal plus the additional rollover fee.

For example, if you borrowed $300 with a $45 finance charge and cannot pay on the due date, you might be offered a rollover. You would pay another $45 fee, and the loan would be extended for another two weeks. If you continue rolling over every two weeks for four months (about 8 rollovers), you could pay $360 in fees alone while still owing the original $300.

• Rolling over does not reduce the principal; it only postpones the due date.
• Each rollover adds a new fee, increasing the total cost.
• In some cases, lenders may offer an extended repayment plan.
• If you don't pay and don't arrange an alternative, the lender may attempt to collect the debt through other means.

Sources: Consumer Financial Protection Bureau

Understanding Rollovers and Renewals

A rollover, also known as a renewal or extension, is a practice where the borrower pays a fee to delay repaying the loan. The fee is typically the same as the original finance charge, and it does not go toward the principal. This can quickly lead to a cycle of debt, as the fees accumulate while the original amount remains unpaid.

The Consumer Financial Protection Bureau (CFPB) has found that many borrowers end up paying more in fees than the original loan amount. For example, on a typical $300 loan, paying only rollover fees every two weeks for four months would total $360 in fees while still owing the original $300. This is why many states have placed limits on rollovers or banned them altogether.

Some states require lenders to offer a no-cost extended repayment plan. This plan allows you to repay the principal and any fees already incurred over a longer period, typically several months, without additional finance charges. However, not all states require this, and the availability of such plans varies.

• Rollovers and renewals are the same practice: paying a fee to extend the loan.
• Many states limit or ban rollovers to protect consumers.
• An extended repayment plan can help you pay off the loan in installments without extra fees.
• If you are unable to pay, ask your lender if they offer an extended repayment plan.

Sources: Consumer Financial Protection Bureau

Consequences of Default: Collection, Fees, and Credit Impact

If you do not repay the loan on time and do not arrange a rollover or repayment plan, you may face several consequences. The lender may attempt to collect the debt by contacting you or using a collection agency. They may also charge fees for a returned payment or for collecting the debt, which can increase the total amount you owe.

The impact on your credit score is a key concern. While not all payday lenders report to the three major credit bureaus, some do. If the lender reports your default to a credit bureau, it could appear as a negative item on your credit report and lower your credit score. However, the specifics can vary, and not all lenders report.

• Defaulting can lead to collection efforts and additional fees.
• A returned payment (bounced check or failed ACH) may incur fees from both the lender and your bank.
• Credit reporting is not universal, but some lenders do report defaults to credit bureaus.
• If you're unable to repay, contact your lender to discuss options like an extended repayment plan.

Sources: Consumer Financial Protection Bureau