How to Avoid Penalties From Defaulted Payday Loans

Payday loans are short-term, high-interest loans issued to individuals. Some payday lenders charge as much as 400 percent in interest, in addition to service fees, according to the State of New York Banking Department. These service fees are attached to both the initial loan and any subsequent default. Payday loans are typically small in size, but if a borrower defaults, he can end up paying more in interest and penalties than in the repayment of principal. Borrowers can take several steps to make sure they do not trigger a default.

Instructions

1

Provide the lender with a bank account number. Many payday lenders will require borrowers to give a number for a checking or savings account that the lender can deposit money into and then, when the loan comes due, draw money out of. Even if the lender does not require this, it is a good idea to provide one as a backup plan in case you cannot repay the loan.

2

Get overdraft protection on your checking account. After giving the payday lender a bank account number, make sure the account is secured with overdraft protection. This means that if not enough money in the account is available to cover a charge, money from another account is automatically made available to cover the difference.

3

Develop a backup plan. Although you may have a primary means by which you intend to pay off the payday loan, such as a regular paycheck, have a backup plan in case something goes wrong. This can include a short-term loan from friends or family or even taking out a second payday loan if no other loan options are available.

4

Pay back the loan early. Most payday loan companies allow borrowers to pay back the loan before the date is due. To be sure that nothing goes wrong, pay back the loan as early as possible. If possible, pay in person rather than by mail to be certain the payment goes through.

5

Contest any assessed penalties. If a payday loan company attempts to assess fees or penalties that you did not agree to, it is violating the law and is obligated to return the money to you. Consult an attorney on taking legal action against the company.