Payday loans can be a good way to help you with an unexpected bill, such as a medical bill, veterinary bill, or even a bill for car repairs, as well as a good way to give you a little extra money until your next paycheck.
Payday loans, however, can be an expensive product and, if used carelessly, could result in debt accumulation. Therefore, it’s crucial to have a repayment strategy before applying for a loan online.
An average of 14% to 20% of borrowers of payday loans are thought to be unable to repay them, and they either write off the debt or enter into a repayment arrangement.
You can stop paying payday loans legally even though repayments are typically made automatically.
- To stop the next scheduled payment, give your bank the stop payment order at least three business days before the payment is scheduled. …
- To stop future payments, you might have to send your bank the stop payment order in writing. …
- Be aware that banks commonly charge a fee for stop payment orders.
How to Stop Paying Payday Loans Legally: a Step-By-Step Guide
You probably already know that most payday lenders require you to set up an ACH payment, or automated clearing house payment, which is similar to a direct debit payment to them, if you’re one of the 12 million Americans who used a payday loan in the last year.
However, there are steps you must take if you find yourself in a situation where you must prevent lenders from debiting your bank account.
Notify Your Lender/s
Notification must be made in writing and sent via certified mail to both your bank and the lender.
Most of the time, your lender will be able to communicate with you and assist you in setting up a different payment method or a delayed payment. Your lender will frequently be understanding and do what they can to assist you in this situation if the reason you’re unable to make your repayment is beyond your control.
Borrowers can streamline the procedure by using the stop automatic payment letter template provided by the Consumer Financial Protection Bureau (CFPB). Call your lender to inform them, and make copies of all correspondence (both written and verbal) for your records.
Notify Your Bank
Call your bank to inform them that your lender no longer has permission to deduct loan payments from your checking account after speaking with your lender. Use the CFPB template to create a letter that addresses all the important points.
Issue a Stop-Payment Order
Get in touch with the bank or credit union right away to request a stop-payment order for the upcoming loan payment, especially if the automatic payment authorization was revoked not long before the subsequent withdrawal date.
The bank will give instructions on how to formally stop payments. An initial call might be sufficient, but the bank might want written notice.
Three days before your payment is due, you’ll want to make sure all the paperwork is with your bank and lender.
Monitor Your Bank Account
Keep an eye on your bank account to make sure the payday lender is not continuing to withdraw money from it without your permission. If money is taken out, challenge the withdrawal to get the money back along with any associated withdrawal fees.
You can close your bank account as a last resort to stop the transfers, but keep in mind that this will have a negative effect on your credit.
Alternatives to a Payday Loan
You may choose to take alternative actions to help you get out of your financial funk if you decide that a payday loan isn’t for you or if you happen to reside in one of the 13 states where payday loans are illegal.
Borrow From Family or Friends
Borrowing money from family and friends can be a great way to avoid taking out a high-interest payday loan if you’re in a tight financial situation.
No matter what interest rate you choose, make sure to put your loan agreement in writing. This agreement should specify the amount borrowed, the rate of interest or type of collateral used, the payoff period, and the amounts and due dates for payments.
Cash Advance From a Credit Card or Employer
In comparison to payday loans, credit card cash advances typically have lower interest rates.
However, keep in mind that the APR for a credit card cash advance might be higher than the APR for purchases made with the same credit card. Additionally, you will be charged a fee for withdrawing a cash advance (typically 3% or 5% of the borrowed amount).
If you have encountered financial demands that you can’t quite meet, it might be worthwhile to speak with your employer if you have a job. Numerous employers provide assistance programs to their staff, most notably in the form of pay advances.
When your paycheck is given to you early, you receive a pay advance. If you receive a bill before your next pay period and require money right away, doing this might be necessary.
Payday Alternative Loan (PAL)
PALs that are less expensive give borrowers more time to repay a loan than payday loans do.
For a PAL, a credit union may impose an application fee of up to $20. PAL amounts can range from $200 to $1,000, with a one- to six-month payoff period.
The same borrower may receive up to three PALs in a six-month period, provided that no PALs overlap or roll over.
FAQ
What happens if you stop paying payday loans?
In general, if you default on a payday loan, the payday lender or a debt collector may file a lawsuit to recover the money you owe. If they prevail in their lawsuit or claim, or if you don’t contest it, the court will issue an order or judgment against you. The amount of money you owe will be specified in the order or judgment.
Can a payday loan be written off?
Payday loans are among the types of loans that can be written off. Title loans. Secured loans. Personal loans.
How do I get out of a payday loan cycle?
- Attack high-interest debt first. If your debt is dispersed among several accounts, list what you owe and pay particular attention to the ones with the highest interest rates.
- Ask about an Extended Payment Plan. …
- Seek credit counseling. …
- Explore other payback options.
How can I get out of a tribal payday loan?
- Negotiate with your creditors: The only thing that matters to payday lenders is getting as much money as they can
- Refinance with a personal loan: If you are eligible, take out a personal loan from a reputable institution to pay off all of your payday loans.