Payday loans are a short-term, small loan that gives borrowers quick cash. Payday loans typically have a repayment term of two to four weeks and are usually less than $500. Payday lenders are dependent on the borrower’s ability to repay. However, it is possible to default on a loan and not pay back in due time.
In the end, payday loan defaults can cause financial hardship. We’ll provide statistics to help you figure out what percentage of people default on payday loans. This could have a negative impact on you or someone you care about.
Overall, approximately 32% of payday loan borrowers default on their debt which is considerably higher than other forms of debt such as credit cards and mortgages. Payday lenders typically charge high interest rates, often in the range of 400-500%, to make up for the high default risk.
Avoiding Payday Loan Default
There are many things you can do if you must get a payday loan.
- Make sure that you can repay the loan in the time frame. Payday loans are not something you should use as a last resort. You should never borrow more than you can pay back.
- If you have difficulty making your payments, contact the lender. Many lenders will work with borrowers that are having difficulty making ends meet. They might be able to extend the repayment term or lower the interest rate.
- Pay close attention to the terms of your loan agreement. You should understand the terms of your loan agreement, including how much and when payments will be due. Also, what happens if you default.
- Use a calculator to calculate how much interest and fees you’ll owe. This will help you plan how to repay your loan.
Payday loans are short-term, unsecured loans that borrowers typically use to cover unexpected expenses or to bridge the gap between paychecks. Payday loans are often marketed as a quick and easy way to get cash, but what many borrowers don’t realize is that payday loans can be expensive and can quickly spiral out of control.
If you have trouble managing your debt, it is worth seeking financial counseling. A qualified counselor will help you create a budget and a repayment plan that suits your needs.
Payday Loans are meant to be used only as an emergency and not as a permanent solution to your financial problems. Contact the lender immediately if you are unable to repay the loan. Ask how you can work together to modify the repayment terms. When borrowers fall behind in their payments, payday lenders must offer them alternative repayment options. Many borrowers are unable to pay their payday loans on time due to unexpected expenses, or they don’t know how much it will cost. You should not take out payday loans if you are unable to repay the loan in full and on time. This could have serious financial consequences.
Using a payday loan as a last resort and only borrowing what is needed to cover emergency expenses are a key factor to avoiding payday loan defaults.