Renewing a payday loan is effectively taking out another payday loan with the same lender. You would do this after you’ve repaid your last loan in full.
It’s estimated in the US that on average, a payday borrower will take between 8 and 13 Payday loans per year from a single payday lender. It’s a very common practice.
If you stick with the same lender when it comes to renewing, you might get better rates and conditions. This is especially true if you’ve proven yourself to be reliable by making repayments on time every month for the right full amount.
What Is The Renewal Of A Payday Loan?
At its simplest form renewing a payday loan is taking out a payday loan, paying it back, and then taking out another one from the same lender.
Some lenders talk about the expiry of loans – a loan expires once it’s paid back in full and on time.
In many situations, people borrow payday loans for emergencies or home repairs. You might need a $600 loan quickly and so you take off a payday loan. After 1 month you pay this off which means the loan has expired.
After this, you might have another situation like an emergency medical bill that costs $400. You go back to your same payday lender and renew your loan.
Basically, a payday loan renewal is taking out another loan for the same amount of money the next month immediately after you paid off the first one.
4 out of five borrowers renew their payday loan as they find that they’ll need more money at the end of the month.
Why Would I Need To Renew A Payday Loan?
When you first take out a payday loan, the total amount you repay is based on a couple of things
- The interest rate.
- The amount of time you’re repaying it or the length
- Frequency of payments.
These factors plus your credit score and history will depend on how much you need to repay each month. If you renew your loan, you might be able to get better rates on some of these factors.
If you renew your loan, you might be able to.
- Lower your lifetime overall cost of borrowing.
- Reduce your payments.
- Consolidate debt.
For example- at the end of your loan expiry, you might be able to switch from an unsecured to a secured loan. This could reduce your monthly payments.
There are many reasons for renewing a loan and one of those might be to consolidate debt. Another reason might be to pay off another unexpected debt. Everyone has different reasons for taking out payday loans.
Can I Borrow More When I Renew A Payday Loan?
The short answer is yes- you can borrow more when you renew a payday loan. When you first take out a payday loan lenders typically lend less than $500 because they don’t know the person. If you then repay the amount in full then your limit could go up because they see you as trustworthy.
Everyone wants to reduce the amount of risk they have and proving yourself to be reliable the lender will help you.
The next time you take out a payday loan you might even get a better rate, which means you’ll pay less over the long term.
How Can I Make Sure I’m Approved For My Payday Loan Renewal?
Renewing a payday loan is never guaranteed. If you’ve had issues paying back your loan in the past or you have a bad credit rating you might be denied. However – it is common for payday borrowers to take out another payday loan. 4 out of 5 payday loans are renewed each year.
To give yourself the best chance of renewal for a payday loan, you can do the following.
- Repay your installments on time and in full each month.
- Try to add money to your savings in your bank balance whenever possible.
- If you start making more money, declare this to the borrower.
- Keep one eye on your credit score to see how you can improve it.
- Pay any outstanding debts or bills.
- Keep your credit utilization rate low.
This is not only good for payday loan repayments, but it’s also good for your credit health in general.