Most payday loans are easy to get. However, this doesn’t mean that they’re easy for borrowers to repay. In many cases, all it takes is a small financial hiccup to make repaying a payday loan seriously difficult, potentially causing you to become entangled in debt.
Worse yet, this debt can get bigger over time, making repaying your loan a serious challenge that requires financial responsibility and focus.
Payday loans are short-term loans. Because they’re short term, they typically come with higher interest rates than longer term loans, such as auto loans and mortgages. This means that you can often face significant interest costs if you fail to repay your payday loan on time.
While new regulations have changed the way payday loans work and made repaying payday loans slightly easier, it’s still possible for an unpaid loan to create serious financial problems.
Although paying off a payday loan isn’t always easy, there are several ways to get out of debt and put your loan behind you. Below, we’ve listed three of the most effective ways to repay a payday loan, ranging from enhancing your credit score to using long-term finance.
Ask for a repayment package
If you’re on a limited income, paying back a payday loan can be difficult. After you’ve made the loan repayments, there’s a risk that you could be left without enough money to pay for essential things such as groceries, rent and utility bills.
This can often lead to borrowers “stacking” loans by taking out a payday loan to pay off another one — not a good situation.
If you’ve found yourself in a difficult financial situation due to a payday loan, try reaching out to the lender and asking for a repayment package. These packages often involve you paying off a small amount of your loan every month or week until the debt is completely cleared.
While this method might cost slightly more than simply paying back the loan all at once, it lets you take care of your finances without having to worry so much about paying for rent, utilities, groceries and other day-to-day essentials.
Improve your credit score
The best long-term strategy for paying back payday loans is to improve your credit score, letting you access less expensive forms of credit.
Payday loans usually have higher interest rates than other loans, meaning there’s a risk you’ll end up paying more than you’ve borrowed if you miss payments and let interest build up over time. However, they can also be useful tools for building your credit score and history.
The best way to improve your credit score is to pay off your loans when they’re due without any missed or late payments. This signals to other lenders that you’re a trustworthy borrower. Over the long term, it can improve your access to other types of loans and financing options.
With a better credit score, you’ll eventually be able to access installment loans and other types of loans that offer better value for money than short-term payday loans.
Use a long-term loan
If you have a reasonably good credit score and can get approved for a long-term loan, you can use it to pay back your shorter term, more expensive debts.
Because payday loans are short-term loans, they usually come with higher interest rates than other borrowing options. Using a long-term loan to pay off your short-term debts lets you make your repayments simpler and more affordable.
The simplicity comes in the form of a single payment, helping you avoid the difficulty of juggling several lenders at once. The affordability comes in the form of a lower interest rate, helping you rebuild your finances without the pressure of a short-term, high-interest loan to worry about.
While not everyone can access this option, it’s a viable choice for people with the credit score and borrowing history required to qualify for longer-term, installment-based borrowing.
Are payday loans right for you?
When used correctly, payday loans allow you to access the cash you need when you need it, helping you stay on top of expenses such as bills, groceries and rent. When used incorrectly, even a small payday loans can potentially turn into a serious financial issue.
Because of this, it’s important that you approach payday loans with the right attitude and check that you’re aware of the deal you’re entering into before you sign anything. Once you’re ready, you can access a variety of short-term, instant payday loans online.