For consumers who are struggling to repay their payday loans, it is important to take advantage of any payment plans offered by lenders. Assistance is often available, which can save you from paying additional fees, charges or interest in the meantime.
When releasing recent report findings, the Consumer Financial Protection Bureau (CFPB) said, “Our research suggests that state laws that require payday lenders to offer extended repayment plans at no cost are not working. as expected. Payday lenders have a strong incentive to protect their income by encouraging borrowers to re-borrow in expensive ways.
Payday loan borrowers are often unaware of their rights. Payday loans are allowed in 26 US states, and 16 of them require lenders to offer customers extended payment plans at no cost.
An extended payment plan means the borrower can avoid paying additional fees or interest. The principal amount and the costs already incurred are divided into affordable payments – usually over several months – and are reimbursed 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 rolled over for another pay period and they are charged a fee.
According to the CFPB, many consumers are unaware of the benefits of an extended no-fee payment plan. The financial benefits 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 repay principal and fees. After four months, that would mean paying $360 in additional fees on top of the original loan amount.
If they chose an extended payment plan on the first rollover date, they would only have to pay $345 over an extended period, which would be divided into manageable payments.
Personal loans are an expensive form of credit, so it is essential to check carefully before taking out one. Consumers should be sure to read the terms and conditions and, if in doubt, contact the company directly for available options.