The Consumer Financial Protection Bureau points out that there is no set definition for a payday loan, which means you’ll need to look to your lender to determine exactly when the full repayment for the loan is due. In most cases, however, payday loans are due when a person receives their next paycheck. If borrowing from a different source, such as Social Security, you could have as many as four weeks to pay back the loan. What happens if you don’t have the money to repay the payday loan on the due date? Can you get an extension?
Rolling Over a Payday Loan vs. Getting an Extension
Depending on the state in which you live and the policies put in place by your lender, you may have the option of rolling over your payday loan or getting an extension. It’s important to note that the two options are not the same thing.
With a payday loan rollover, the borrower is required to pay an upfront fee for additional time to come up with the total payment. The lender may change the terms of the loan at this time, which includes increasing the interest rate. The borrower will be required to sign a new loan agreement, as the old loan is now rolled into the new one.
With an extension, the borrower is simply granted additional time to repay the original payday loan under the original loan agreement’s terms and conditions. You may be asked to sign an amendment that includes the new payment due date.
Can You Get an Extension Without Paying Penalty Fees?
If a payday loan lender is reputable, there’s a good chance they are a member of the Community Financial Services Association of America (CFSA). This organization requires its members to allow borrowers to request one payday loan extension every 12 months at no additional cost. The extended payment plan (EPP) will be approved, no matter what the reason is for your inability to pay.
Consumers should take the time to read the CFSA’s Customer Bill or Rights before requesting an EPP. The company recommends contacting your lender the business day before the loan is due to request the EPP, as an amendment will need to be signed. The agreement will spell out the repayment plan and will list any consequences should you default on the loan. For example, you may be required to pay a fee if you miss one of the payment due dates. The balance of your payment may also be accelerated.
Beware of Fees and Hidden Costs When Rolling Over a Loan
Although there are no hidden costs associated with a payday loan rollover that is conducted through a reputable lender, there are fees you’ll have to pay when you agree to this type of loan. Depending on the lender, you may have to pay a set fee for the rollover, which still includes your principal and ongoing interest charges, or you may have to pay a set fee plus a higher interest rate. All of the fees should be clearly spelled out in your rollover contract.
Why You Should Avoid Rolling Over a Payday Loan
There’s a good reason why many states ban payday loan rollovers and why others put strict limits on them. The Federal Reserve Bank of St. Louis reported that the average payday loan interest rate is 391%. That means if you took out a $400 payday loan, you’d pay a $60 fee. Since most payday loans are due on your next payday, you’ll owe $460 within just a week’s time. If you roll that payday loan over, you’ll incur at least another $60 fee (some lenders may charge even more than this). Now your total amount due is $520. Most likely, that amount is again due on your next payday.
Rolling over a payday loan keeps you in a cycle of debt that continues to accumulate. Within just a month or two, you’ll begin to find this cycle has become impossible to break.
Ways to Avoid Rolling Over a Payday Loan
Fortunately, there are better alternatives to rolling over a payday loan when you need extra cash.
Take Out a Credit Card Advance
According to CreditCards.com, the average interest rate for a credit card cash advance is 24.80%, which is a heck of a lot more affordable than 391%.
Apply for a Personal Loan
Personal loans require you to prove that you can repay the loan; however, if you do qualify for one, you’ll find their interest rates are often quite low. Bankrate lists the average personal loan interest rate as of July 2020 as 11.91%
Ask for a Paycheck Advance
Instead of taking out a payday loan, you can go directly to your company’s Human Resources department and request a paycheck advance. The company may authorize the advance without any interest fees, although some businesses charge a small interest fee for the service. Some companies now even offer a paycheck advance service like DailyPay that allows employees to access wages as soon as they’re earned.
Try a Cash Advance App
Don’t want to have an awkward talk with HR? There are plenty of online cash advance apps that offer loans that are very similar to payday loans — small, short-term loans you repay with your next paycheck — but many of those lenders don’t charge interest. Instead, they ask borrowers to leave a “tip” for the service. Some also charge a small monthly subscription fee.
Borrow From a Friend or Family Member
While it may be difficult to gather up enough courage to ask a friend or family member for a loan, it won’t cost you as much as a payday loan. Friends and family are also more likely not to charge interest or give you a quick repayment deadline like you’d get with a payday loan.
The Bottom Line
It’s possible to get an extension on a payday loan, but it’s not recommended unless your state offers an opportunity to extend without a financial penalty. And rolling over the initial loan into a new loan might sound like a good option, but it is not. You’ve already paid a high price for the original loan. Before you extend or consider a new loan, make sure you’ve exhausted all other options first. You don’t want to get stuck in a debt cycle.
If you ignore a debt collector, It’s likely you’ll get a court summons because they’ll file a collections lawsuit against you in court. If they win through a default judgment, you could end up having your wages garnished. If you fail to appear in court, you could even end up in jail.
Don’t offer any personal or financial information, and don’t admit the debt is yours. Ask for a debt validation letter. Debt collectors will want certain information to confirm your identity and claim ownership of the debt. Tell them that you will only communicate with them in writing and through your attorney.
You will not go to jail for nonpayment of a debt. That’s a civil matter. If you do go to jail, it will be for a secondary reason, like violating a court order, neglecting to pay income taxes, or failing to appear in court.