How to Defer a Payday LoanAuthor: John Lowrie, Published: December 3, 2012
Payday loans are borrowed in the short term in order to pay for financial emergencies that arise before a person is paid by an employer, but sometimes the borrower needs to request a payment extension. Approximately one out of every four people who have a payday loan in the UK are not able to repay it on time.
Understanding the correct way to request a deferral on a payday loan is key to avoiding any negative credit consequences.
Timing of Deferral Requests
An inability to pay back a loan can be a stressful situation, and many people deal with this stress by avoiding the situation completely. Unfortunately, avoiding the fact that a payday loan cannot be repaid on time will result in penalties, fees and negative credit reporting.
Payday loans are short term, so it is likely that the borrower will not have much time to notify the lender about an inability to pay. This makes it especially important for the borrower to notify the payday loan company immediately when the inability to pay as agreed upon is realised.
If possible, borrowers should give a payday loan company notice about payment difficulties a minimum of five days before the loan is due.
Knowing the Options
Deferral is a topic that is likely to be outlined in the initial loan agreement. Reviewing this agreement before contacting a payday loan company gives the borrower the benefit of understanding any options that may be available. A representative may not be properly aware of the specific loan terms that one borrower may have, so it is important for the borrower to understand their rights and responsibilities when it comes to a deferral request.
Calling immediately after the realisation regarding an inability to pay is the best method of notifying a payday loan company. This allows the company to be aware of the situation as soon as possible, and speaking directly with a representative gives the borrower the ability to discuss deferment options.
Sending a request by post has some benefits, but it is the slowest method of requesting a deferral. This option would need to be done almost immediately after taking out the payday loan. However, post deferral requests have the benefit of allowing the borrower to request a record of receipt of the letter. Proof that a request was sent to a payday loan company could be helpful if the lender claims that the request was not made.
A request for a deferral may be made in person if the lender is a local financial institution. Most payday loan companies only operate online and cannot be visited in person, but some banks do offer these types of loans. A benefit to in-person requests is that the borrower can discuss options and provide proof of an inability to pay much more easily than during a request on the phone or by post.
Qualifying for a Deferral
Whether a deferral request is granted is at the discretion of the payday loan company. The lender is urged to use recommendations related to fair credit practices as dictated by the Office of Fair Trading. Areas that the payday loan company is likely to examine when determining whether a borrower can be granted a deferral include current financial status, level of total debt and credit history.
How a Deferral Works
The exact setup of the deferral will depend on the company, but there are some common ways for a payday loan company to allow a borrower to defer their loan.
One method of deferring the payday loan is by paying the associated fee and deferring the balance of the loan. The deferral will be short term, but it will give the borrower more time to get the funds together to pay for the loan. For example, a loan that was intended to last one week may be extended to 30 days.
If the borrower is unable to pay any amount on the loan, the due date may be extended. However, this method of deferral often results in a second loan fee. Deferring the loan without paying anything at all can become very costly, so it is best to find a solution that avoids high fees.
While the intention of a payday loan is for it to be short term, borrowers may find themselves in a financial bind once the due date comes around. Notifying the lender as soon as possible and working to find a payment solution is essential to avoid negative consequences of failing to repay a loan.
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