Payday Loan Checklist – Six Things You Must Do After Taking Out an Online Payday Loan

Posted by on Nov 30, 2006 in Articles

Payday Loan Checklist – Six Things You Must Do After Taking Out an Online Payday Loan

Payday loans are the most expensive form of credit and should be avoided at all costs.

If you exhaust all alternatives and end up using a payday lender, there are things you can do to minimize your chances of having to use one again.

Below is a list of things you must do after taking out a payday loan…

  1. Keep Looking for Alternatives

    If you can find a cheaper form of credit such as a loan from a credit union, family member or an advance from your employer, take it and pay off the payday loan immediately.

    Some payday lenders offer discounts for early repayment (rare, but they do exist) and some state consumer protection laws let you cancel the payday loan if you pay back the principle within a certain amount of time (usually 24 or 48 hours).

    Payday loans are much more expensive than other forms of credit. If you extend the loan (also known as ‘rolling over’ or ‘flipping’ the loan), the fees will double and keep multiplying with every extension. It will be difficult (or impossible) to repay the loan once you start extending it because most payday lenders do not accept partial payment.

  2. Eliminate All Luxuries

    When you take out a payday loan, you have hit rock bottom (financially speaking). If you have to resort to such expensive credit for such a small amount of money, it means:

    • you live paycheck to paycheck
    • you have no savings
    • you have exhausted all other financial options

    In other words, you are in a financial emergency. Your first priority should be to repay the loan as quickly as possible and survive beyond your next paycheck.

    Eliminate all luxuries (dining out, movies, etc.) until the loan is repaid in full and you have survived the month after. Extending the loan (or taking out another payday loan to repay the first loan) will put you on the debt treadmill. It will turn your short-term financial emergency into long-term financial suicide.

  3. Create a Budget

    Take an objective look at your income and expenses (especially expenses). Explore other sources of income and cut out all non-essential spending. Devote an hour or two every month to track expenses. PearBudget is a free, simple, spreadsheet-based program that can help you create a budget. Once you have a budget and cut down expenses, you can start building your savings.

  4. Create a Rainy Day Fund

    Payday loans are a waste of money when you need money the most. To avoid using them in the future, create a rainy day fund. After the current payday loan has been repaid in full, imagine that it is still outstanding and keep paying interest into YOUR bank account, NOT a payday lender’s. If you cannot afford to put that much into your savings account and make ends meet, try to at least put 10% of every paycheck into a savings account. With a rainy day fund, you may be able to get over your next financial crisis without having to approach costly lenders.

  5. Double-Check Bank Account Balance and Due Date

    Insufficient funds is one of the worst things that can happen in a payday loan transaction. On the loan due date, the payday lender will attempt to cash your check (or withdraw funds from your account). If you don’t have enough money in your account to cover the entire amount (principle and interest), you will be stuck with an extension fee that effectively doubles the cost of your loan. If your check bounces, your bank and the lender’s bank will hit you with NSF fees. Depending on your agreement, you may also face additional penalties/fines from the lender.

    Take this opportunity to double check your loan due date now. Just because it is called a payday loan, there is no guarantee that the due date is on your payday. For details, please read Double-Check Your Payday Loan Due Date.

  6. Contact Lender to Confirm Payment Schedule

    Unethical payday loan companies will try to withdraw just the interest (i.e. extend or “roll over” the loan) and leave the principle outstanding. This effectively doubles their profit at your expense. If you plan to pay the principle and interest in full on your next paycheck, contact your lender to let them know that they should withdraw the full amount and close out the loan.

    Ignore invitations to extend the loan. Extensions are in the lender’s best interests, not yours.

    Conversely, if you will not be able to repay the loan in full on your next paycheck, contact the lender and make sure that they understand you will be extending the loan. Again, if at all possible you should never extend payday loans.

Hopefully, these six things will help you reduce the chances of having to take out another payday loan.

Always consider payday loan alternatives that are safer and cheaper.

Yesterday, we posted an article that may also be of interest to you: Payday Loan Checklist – Ten Things You Must Do Before Applying for an Online Payday Loan.

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