For consumers struggling to pay back their payday loans, it’s important to take advantage of any payment plans that are offered by lenders. Assistance is often available, and this can help avoid paying additional fees, charges, or interest in the meantime.
When releasing its recent findings from a report, the Consumer Financial Protection Bureau (CFPB) said, “Our research suggests that state laws that require payday lenders to offer no-cost extended repayment plans are not working as intended. Payday lenders have a powerful incentive to protect their revenue by steering borrowers into costly re-borrowing.”
Payday loan borrowers are often unaware of their rights. Payday lending is allowed in 26 US states, and 16 of these require lenders to offer customers no-cost extended payment plans.
An extended payment plan means that the borrower can avoid paying any further fees or interest. The principal amount and the fees already incurred are split into affordable payments – usually over several months – and this is repaid by the consumer.
The alternative is to roll over the loan if they cannot pay on time. This is a more expensive option, as the loan is renewed for another pay period and they are charged a fee.
According to the CFPB, many consumers aren’t aware of the benefits of a non-cost extended payment plan. The financial advantages can be substantial in some cases.
For example, the agency points out that, on a $300 loan, the borrower would pay $45 in rollover fees every two weeks until they pay off the principal and fees. After four months, this would mean paying an additional $360 in fees on top of the original loan amount.
If they chose an extended payment plan at the first rollover date, they would only need to pay $345 over an extended period, which would be split into manageable payments.
Payday loans are an expensive form of credit, so it’s essential to check carefully before taking one out. Consumers should make sure they read the terms and conditions and, if in doubt, speak to the company directly to find out what options are available.