Payday loan companies lend cash against your promise to repay the borrowed money when you get your next paycheck. If you can't cover the debt when that date rolls around, you typically have the option of rolling it over until the following payday -- with an additional fee attached -- or possibly entering into an extended payment agreement.
How Payday Loans Work
While terms and conditions vary from one payday lender to another, most follow a similar practice. You borrow a certain amount with the promise to repay the debt on your next payday. Lenders may have you write out a check for the debt balance, including their fee, which they deposit on the agreed upon date. Alternatively, they may ask you to authorize an automatic withdrawal on a certain date. If you know you won't have the funds available to cover the debt, talk to your lender to discuss your options. Your may be able to "roll over" your debt for another pay period, tacking on another fee. If you do this repeatedly, you may end up owing more in fees than you do principal.
Extended Payment Plans
If you simply can't get caught up, ask for an extended repayment plan in which you spread out your payments over a longer period of time. If your lender is a member of the Community Financial Services Association of America, extended payment plans are an option, and are offered without a fee provided you don't default. To qualify, you must contact your lender the day before your loan payment is due and sign a new agreement that divides your balance into four equal payments distributed over future pay periods.
Check State Regulations
If your lender is not part of CFSA, contact your state attorney general's office to find out if your state has laws that require payday lenders to offer extended payment plan options. A plan may not be offered if you've already defaulted on your agreement. If you take on this type of plan, you may be ineligible to apply for another payday loan until a specified waiting period after the original loan is repaid in-full. Your state's banking regulator also can provide more information about payday lenders in your area.
Know What You Owe
The federal Truth in Lending Act requires lenders to provide you with full details about the fees associated with borrowing money. Read this information carefully before signing any contract so there are no surprise fees or charges down the line. If a prospective payday lender doesn't give you this information, look elsewhere for a short-term loan.
Check your local Better Business Bureau before selecting a payday loan company. If complaints have been filed against the lender, you'll be able to read them and get a better idea about what kind of business you're dealing with.