Payday Loan Tip #6: Don't Get Trapped

Get Out of the Payday Loan Debt Trap

Stay away from the trap created by piling up payday loan after payday loan. If you have to take out a second payday loan to pay back your first one, you will create a huge debt trap that is difficult to get out of.



If you cannot pay back your loan at the due date, tell the lender that you need to make a repayment arrangement that will allow you to pay back the loan in monthly installments. Some states require the lenders to allow this, including Alabama, Alaska, Florida, Illinois, Michigan, Nevada, Oklahoma, and Washington. If you do not get a positive response from the payday lender, your state regulator can help you.

Do not allow lenders to take money directly from your paycheck. Read any contracts carefully to see if you signed a clause called a voluntary wage assignment. If you did, you need to write the lender revoking that part of the agreement, so the lender cannot take your wages without approval from the courts. The Federal Trade Commission's Credit Practices Rule prohibits any mandatory wage assignments, which some lenders' contracts use anyway.

Beware of Bounced Check Fees on Payday Loans

Since you are securing your loan with a personal check, you open the potential for unexpected costs if you do not have the money to pay back the loan on the next payday.

Both the bank and the payday lender will charge a fee if your check bounces. Every time a check is returned by your bank unpaid, you are charged another fee by the bank. The bank fee usually ranges between $20 and $35. The payday loan company will also charge you if your check is returned by the bank.

When paper checks bounce, the lender can convert them into an electronic re-presentment. The self-regulatory rules that all banks must follow limit the amount of times that an electronic check can be presented for payment after it has been sent back. The lender should not try to return the check more than three times. However, that still means that you will be paying the fees charged by the bank and the lender three times if the payday loan check overdraws your account. If you see that the lender has sent the check in more than three times, you can file a complaint with your bank.

Even payday loans that are handled electronically can "bounce." Also, the agreements you sign for an online payday loan may allow the lender to break the payment into several different attempts to get the money from your bank account. Each time the lender tries to get the money electronically, you can earn NSF fees if you do not have the money in your account. The loan agreement may require you to keep your bank account open until all fees and payments have been collected by the lender.

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