A payday loan is a type of short-term loan where a lender will lend you a specific amount of cash based on your income. When looking to borrow money instantly in the form of a payday loan, this is likely to be anywhere from $100 to $1000 loans and even more and will be provided to borrowers with the loan and interest payable just after the borrower’s paycheck is received form their employer. However, if you need more time to pay back your loan you may choose to renew, or rollover your loan so that you may repay it at a later date; something some lenders may allow.
But why take out a payday loan in the first place? A payday loan can be useful to those who need quick emergency cash to cover costs that they cannot afford. This may be unforeseen costs such as utility or other household bills, or perhaps a family emergency, that causes you to need a fast fix of emergency cash. Payday loans are quick and easy to take out, as they normally do not require a credit check or the provision of an asset, they just need a pay stub and proof of identity. But is taking out a payday loan a good solution, and will renewing it really benefit your repayment plan?
Renewing Payday Loans Explained
It is possible to renew, or rollover a payday loan in some cases and with some lenders. Most payday lenders may consider giving borrowers the option to renew their loans if they cannot afford to pay off the loan on the date that it is due. However, if you do choose to do this you will generally have to pay your lender fees for the rollover and of course, it will not reduce the principal amount that you owe in total.
Also, renewing a payday loan is often something considered when a borrower is finding themselves unable to make their required loan repayments, and so, renewals shouldn’t always be your first option.
For example, on a typical payday loan, if you borrowed $300, you may owe $345 in 13 days (as it will be $300 plus the $45 fee). But if you choose to roll over the loan, you pay only pay the $45 fee on the original repayment date, and then you will have to repay the $300 plus another $45 fee 14 days later. So, by renewing your loan the extra cost has already gone from $45 to $90. If you roll over the loan multiple times, it is possible that you may be looking at hundreds of dollars in extra fees in addition to the amount you initially borrowed.
Of course, if you borrow more money, like if you borrow $500 or a larger loan amount, the fees and interest are likely to be higher and so therefore, so are the renewal or rollover fees.
Should I Renew a Payday Loan?
Although you may be able to renew your loan, due to the extra fees that it will end up costing you, it would be generally better to try and avoid this outcome unless it is a real necessity.
This is because, even by just rolling over a loan once, you may owe a fee of up to $100 in renewal fees and this is not even counting the interest that will be charged when repaying the loan. Once both the interest and renewal fee have been taken into account, it quickly becomes apparent just had quickly a payday loan can become a financial burden weighing on your shoulders.
Payday loans are notoriously difficult to pay back due to the difficulties people have in repaying them, causing them to actually be illegal in several states. So, before you even consider taking out a payday loan and the possibility of renewing it, you must check your state regulations to see if this is a course of action you are able to take.
Generally, you should try your best to avoid both taking out a payday loan and renewing it unless either option is an absolute necessity. A payday loan is primarily taken out when people need emergency cash quickly, but if you opt for this kind of loan, there is a possibility of sinking yourself further and further into debt if you cannot pay it back.
You should only opt to renew your loan if you have a solid repayment plan and know that you will be able to afford the initial cost of your loan plus extra fees when your new repayment day rolls around.
What Are Some Alternatives to a Payday Loan?
If you take out a payday loan, especially if you take out a large payday loan, it may be quite likely that you will not be able to pay it back in just a month. If this is the case, you may have little choice but to renew or rollover your loan and deal with the extra costs that this will cause you. Therefore, it may be best to try and avoid taking out a payday loan in the first place to help you avoid these damaging consequences. Here is a rundown of some alternate choices to taking out a payday loan:
- Borrowing from family or friends
- Using any savings you have built up
- Taking out an early cheque from your work pay
- If you’ve built up enough equity in your home, you may be eligible for a home equity loan
However, if taking out a payday loan is a necessity, just make sure that you borrow from a trustworthy, well-rated lender. If you do then opt to renew your payday loan, first check your lender’s regulations and fees regarding the matter and then ensure that you have a solid repayment plan that can ensure you will be able to pay back the entirety of the loan on the newly set repayment date.