Payday loans are a popular solution for getting cash quickly for emergency expenses, home repairs, or other money needs. All you need to do is go through a quick and easy approval process, provide a postdated check or electronic access to your bank account, sign the agreement, and walk out the door with the money.
The conditions that make payday loans easy to get can make it just as easy to get into financial trouble. So, instead of providing tips to repay payday loans, we intend to help you avoid a bad credit fix by detailing why it’s so hard to repay them. We’ll also list payday loan alternatives.
Reasons People Struggle to Repay a Payday Loan
Everything will be fine if you repay your payday loan on time. However, repayment can be challenging if you can’t meet the deadline. The Consumer Financial Protection Bureau (CFPB) reports that 80% of payday borrowers roll over or renew their loans within two weeks. Payday loan rollovers increase the possibility of you defaulting, overpaying, damaging your credit score, or spiraling into a debt cycle.
When you take out a payday loan, the ideal chain of events would be receiving your paycheck in one to two weeks, separating the loan money when you cash it, and repaying your payday loan. However, if unexpected expenses or events interrupt this plan, the following payday loan conditions can make repayment exceptionally difficult.
Balloon Payment
Instead of an installment plan, payday loans’ balance and fees are due in one lump sum on or before the end of the loan period. This arrangement leaves you little room for error if something happens to prevent you from producing the entire amount.
In most cases, the payday lender will allow you to roll over the debt for another loan period if you pay the initial fee. This practice of rolling over your payday loan can become costly because the lender adds another fee to the extended period, to the point you could pay much more than you originally owed.
Brief Payback Period
As stated earlier, most borrowers fail to repay their payday loan within the typical two-week repayment period. This small window of time increases your odds of falling into a pattern of rolling over the loan or defaulting. For this reason, you should thoroughly study the payday loan terms before committing. Terms can vary from state to state.
Incredibly High APR
Payday loan lenders typically lend money to high-risk borrowers without any collateral. For this reason, you can understand why lenders charge an average APR of about 398% as compensation for the risk. On the other hand, this high rate can get overwhelming in a debt rollover situation.
For example, suppose you borrow $400 from a payday lender with a $50 fee. You would owe $450 in 14 days. If you roll over the loan, you only pay the $50 fee— but you must pay $400 plus an additional $50 fee two weeks later. Your total costs come to $100 for a $400 loan. Imagine if you rolled over the loan several times. You could end up paying hundreds of dollars in fees and still owe the entire balance.
Alternatives to a Payday Loan
Even if you have bad credit or need money fast, there are safer and more reasonable alternatives to payday loans. So, instead of figuring out how to repay a payday loan, you should consider these options first.
Borrowing from Friends and Family
Borrowing money from friends and family usually comes with agreeable terms with little chance of a default damaging your credit unless they sue you for the delinquent balance in small claims court. However, failing to repay your loan to a friend or family member may result in a lifelong rift between you. This may also shut off the possibility of getting future loans from relatives or friends.
Installment Loans
Installment loans are a great alternative to payday loans because these plans offer all the advantages of a payday loan with safer and more reasonable terms, even if you have bad or no credit. Unlike payday lenders, installment loans allow you to repay the balance plus interest over several months to years. So you won’t have to pay extra rollover fees. You can also improve your credit score with timely and consistent payments.
The money from your weekly or monthly installment loan payments reduces a portion of your interest and balance. This way, you pay down the interest until you only have the remaining balance to settle with the later payments. In addition, lenders like Jora installation loans have an easy online approval process.
Considering the Best Loan Option
Many people use payday loans to help them get out of a financial bind. However, most borrowers don’t realize that payday loans can potentially get them into deeper money challenges.
You can avoid this risk by considering safer and more agreeable loan alternatives like Jora installment loans. Once approved, you can get the money you need with the flexibility to repay over time without extra fees. You can Apply Now online in minutes and possibly get a Jora installment loan for $500 to $4,000 as early as today.