If you cannot pay a payday loan, you should immediately contact the payday lender and explain your situation. It is highly likely that the lender will offer to “extend” your loan for another pay period in exchange for additional fees. Since most payday lenders grant a huge fraction of their loans to a small number of repeat borrowers, you will not be alone in asking for a loan extension.
The amount you are charged for an extension will likely be slightly higher than the initial amount for the loan. Most payday lenders will be eager to grant you an extension because the extended loan will result in increased fees and interest charges. In theory, you may be able to get a second, cheaper, payday loan from a different lender and use it to payoff the initial loan from the first lender. In practice, timing and transportation usually make this unfeasible.
In the rare case that a lender denies your request to extend your payday loan, you will be in a poor situation. If the payday lender cashes your postdated check (used to secure the initial loan), your bank will likely reject the check for “non-sufficient funds” and charge you a fee in the process. Most payday lenders have stipulations in their contracts allowing for additional fees in the event that your check is returned for non-sufficient funds. This will increase the amount of your debt in excess of the initial amount due. However, because the main recourse for payday lenders to collect from deadbeat borrowers is to sell the debt to a collection agency (for fractions of the full amount owed), it is unusual for a payday operator to take these steps.
One possible strategy if you know you cannot pay a payday loan is to immediately contact your bank and place a stop-payment on the postdated check you used to secure the loan. This will save you the bank fees you would have incurred had your checking account become overdrawn. You will likely owe the bank a stop-payment fee of $5-10, but avoid an overdraft fee of $20-30. Of course, you will still owe the full amount to your payday lender and it is likely your contract covers this case and you will be hit with additional fees as well.
Be very careful if you decide to place a stop-payment on any check you used to obtain a payday loan. Regulations vary from state-to-state, but there are possible criminal penalties in states that consider this process to be writing a bad check. In most states, the fact that you wrote a postdated check in consideration for the payday loan prevents the payday lender from pressing criminal charges. You would be well advised to familiarize yourself with the laws in your state or speak with a legal-aid attorney before placing a stop-payment on a check.
The best and most obvious solution if you cannot pay a payday loan is to sell possessions or borrow money from friends and relatives to ensure that you repay the loan. Debt from payday loans can create a vicious cycle where you fall further and further into debt with each successive loan extension. It becomes more difficult each pay cycle to cover the past-due interest from previous loans and your choices become worse as time passes. In the worst-case scenario, try to work out a longer-term payment plan with your payday lender and be sure to have any loan adjustments or extensions in writing.