There are times when a borrower is unable to pay for his payday installment loan anymore. When this happens, hiding from lenders or intentional non-payment are not good options. One fact that borrowers do not consider is that they are able to stop paying legally. Most payday installment loan lenders agree to a settlement or an extended payment plan.
The payday loan industry caters to persons who desperately need cash and have little or no access to traditional lines of credit. Generally, a payday installment loan typically involves a borrower writing a check for a certain amount plus a fee and then post-dating it for the next payday. The payday lender then agrees to hold the check until the due date. If the borrower is unable to pay the loan in full by the due date, the lender can charge an additional fee that is oftentimes in triple-digit interest rates, making it extremely difficult for the consumer to pay off the debt.
According to the National Consumer Law Center, the interest rates for payday installment loans can be within 700 to 2000 percent of the rate amount. Also, some payday lenders may use account and routing numbers on checks to collect payments by withdrawing the borrowers’ funds at any time. They usually make the borrower sign an authorization for direct deposit, giving the lender free access to the borrower’s account. Despite these things, it is not good for a borrower to default on his loan. There are many ways in which a consumer can reconcile outstanding debts with his payday lender and legally stop paying his payday installment loan.
A borrower may contact his payday lender and ask him to hold the check if the paycheck or other funds will be a few days late. If a borrower needs a longer time to pay the payday installment loan, he may consider requesting a rollover loan. However, it will be advisable to avoid taking on a rollover loan or additional payday loan to cover payment gaps. This will incur a borrower with additional fees for the new loan. However, if you have no other option, this will be the safest way to save from insufficient funds fees from the bank.
A borrower has the option to request an extended payment plan if the borrower is unable to pay on the due date. As much as possible, the borrower must see to it that his lender is a member of the Community Financial Services Association (CFSA). If so, mention the CFSA member requirements in the negotiation to get the best deal. If the lender is not a member, the borrower is advised to research the state requirements for payday installment loan extensions. If an extended payment plan is granted, borrowers are advised to make regular payments and in a timely manner.
Writing a letter may be a good option to stop paying legally for a payday installment loan. The borrower may inform in writing to his payday lender that he cannot pay the full amount including fees and interest. He may offer to pay at least the remainder of the principal. If the original principal amount has already been covered in past payments, less fees and interest, then ask for the account to be considered paid in full. If the lender agrees with any option you offer him, obtain and keep a written record of your revised agreement. Retain both the revised and original contracts for future reference.
Most of all, it is important for a borrower who intends to stop paying legally to make sure if the payday lender he is dealing with operates legally in his state. If the lender is illegal, the borrower is only obligated to repay the principal amount, excluding the fees and interest. The borrower can also research consumer laws and bills, such as SB 834. This bill is drafted by the National Consumer Law Center and the Consumer Federation of America for consumers’ protection in case a borrower is unable to pay his loan.