80% of payday loans are rolled over. That is the business model.
CFPB research shows that 4 out of 5 payday loans are renewed or followed by another loan within 14 days. The average borrower takes out 10 loans per year. The payday lending business model depends on repeat borrowing, not one-time emergency use.
How the debt trap works
Borrow $400, fee $60
You borrow $400 with a $60 fee ($15/$100). You must repay $460 on your next payday in 14 days.
Cannot repay in full
On the due date, you cannot afford to repay $460 and still cover your other bills. You pay the $60 fee to roll over the loan for another 14 days.
Another $60 fee, still owe $400
Same situation repeats. You pay another $60 fee. After one month, you have paid $120 in fees and still owe the original $400.
$360 in fees, still owe $400
After 3 months of rollovers (6 periods), you have paid $360 in fees — nearly the original loan amount — and the principal is unchanged.
How to stop rolling over
Map your actual cash flow
Use Balance On Hand to see exactly what you can afford to repay and when. Identify which paycheck can absorb the full repayment.
Ask for an extended payment plan
Many states require lenders to offer an extended payment plan (EPP) at no extra cost if you cannot repay. Ask before the due date.
Revoke ACH authorization
You have the legal right to revoke ACH debit authorization. Contact your bank in writing to stop automatic withdrawals. Then contact the lender to arrange alternative repayment.
Replace with a lower-cost loan
A credit union PAL at 28% APR can pay off the payday loan and give you months to repay instead of weeks.
Balance On Hand is a cash-flow planning tool. It is not a lender, loan servicer, or financial advisor. This page is for general educational purposes only and does not constitute legal, tax, or financial advice.