Payday loans are a convenient way for some borrowers to obtain quick access to cash. Unfortunately, the average borrower does not repay his payday loan before the loan due date, which can result in hefty fees and a repeating cycle of debt. Going into default on your payday loan can mean increasing your debt substantially if you don't make a plan to repay the loan before it renews.
Default
Once you miss the due date for your payday loan, your loan goes into default. Defaulting on a payday loan is not like defaulting on a credit card or mortgage payment. You can renew your loan if you are unable to pay. When you sign your loan paperwork, there is generally a clause explaining the terms of default that state your loan will be automatically renewed on your payday.
Terms of Payment
Loans that are in default are renewed to cover the past due balance. The lender usually has your bank information and will attempt to debit the loan balance multiple times before renewing your loan. Each pay period, a debit is attempted on your account to repay the payday loan.
Fees
Renewing your payday loan means paying interest and fees for each renewed loan. These fees can accumulate, rendering your new debt and original debt unaffordable. The average consumer renews her payday loan nine times, with fees and interest incurred with each flip. According to the Center for Responsible Lending, interest charges on payday loans average 400 percent.
Ending the Cycle
In order to end your constantly renewing payday loan, you must pay the balance in full. Your debt renews unceasingly until you get the money to pay. When you get the money to repay your debt, put it in your account in advance of your payday so that you do not miss the automatic draft on your account and end up with a new loan balance.
Creditors
Payday lenders are not lenient when it comes to past due balances. If your loan does not automatically renew, you may receive threatening calls and notices until your balance is paid. "Some lenders threaten criminal penalties for failing to make good on checks. In some states, lenders sue for multiple damages under civil bad check laws," explains the Consumer Federation of America.
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