After the Payday Loan

Payday Loan Repayment and Budgeting in the Interim

Though the repayment process is fairly simple and straightforward, payday loan consumers should practice frugality and discipline to ensure full compliance with the loan agreement and a successful satisfaction of their duties vis-à-vis their short term loan lender.

Typically, cash advance borrowers will have 2-3 weeks to repay their loan. On the due date, which is usually the day borrowers receive their next paycheck, the cash advance lender will automatically electronically debit the amount owed from their checking account. Fast payday loan companies accommodate their clients by offering them a choice among various repayment options:

1. Payment in full of the loan amount on the due date marked on their loan agreement;
2. Payment of the finance fee only;
3. Payment of fees and interest only;
4. Payment on or before the maturity date of a portion of the loan principal and the finance charge;
5. Payment of the loan principal less the finance fee;
6. Payment of a portion of the principal and the interest; and
7. Auto-payment or automatic deduction of a percentage of the principal as well as the finance fee due, each payment lowering the loan balance until fully paid.

Time-crunched borrowers can often obtain an extension or rollover of their short term loan until the next payday, provided that they pay the interest on the maturity date. The only caveat is that a loan renewal carries a doubling of the fees charged.

Preferably, consumers should repay their loans in full and on time. Default results in the imposition of stiff penalties by way of above-average interest rates and additional fees. If the borrower's account has non-sufficient (NSF) funds to cover the check, he or she will not only be responsible for the loan principal and fees, but will also be slapped with a bounced check fee from his/her bank. Delinquent borrowers are being reported by some unsecured personal loan creditors to credit bureaus and payment tracking companies such as DP Bureau and TeleTrack. This results in such borrowers being labeled a high lending risk throughout the fast payday loan industry. Default could also adversely impact an already weak credit rating. Some state statutes also authorize a civil action for non-payment of payday advance loans, which could lead to forfeiture of a borrower's assets.

Cash advance loan borrowers should practice sound finance management by setting up a budget, which will permit them to attain their financial goals. The benefits of budgeting are multifold: First, it will enable short term loan borrowers to keep track of their money for one month. Secondly, by keeping detailed records of their expenses, they will be able to control their spending and thus save. A good savings rule of thumb for payday loan borrowers involves reducing their expenses by an amount equivalent to 10% of their gross income. Ideally, the following categories of expenditures should constitute the corresponding percentage of gross income stated below:

• Food: 10%
• Home and utilities: 25-40%
• Travel and entertainment: 5%
• Transportation and maintenance: 15%
• Clothes: 5%
• Miscellaneous expenses: 5% or higher

Since thriftiness pays, fast payday loan consumers should consider and implement the following budgeting tips for at least one or two months:

1. At-home invitations instead of going out on the town;
2. Packing their own lunches rather than dining out (Note: A restaurant meal is at least 3 times more costly than a home-cooked meal. By eliminating restaurant meals, borrowers can save $100 per month.);
3. Purchase clothing items from a thrift store;
4. Reducing their consumption of electricity;
5. Selecting generic brands; and
6. Opting for video rental instead of movie theater patronage.

More Payday Loan articles:

• Avoiding payday fees
• Budgeting payday loans
• Online payday loans
• Payday loan rates
• Finding the right payday loan