What Is a Loan Renewal and How Does It Work?
Every year, approximately 12 million Americans take out payday loans.
Are you part of this group? Do you have a payday loan that you’re not quite ready to pay back just yet, perhaps because you’re waiting on certain business deals to go through?
If so, you may want to consider renewing it. Never heard of renewing a loan? Not sure what this is or how to do it?
Read on to learn everything you need to know about loan renewal, how it works, and how to tell if it’s a good option for you.
What is Loan Renewal?
In short, when you renew a loan (this is also sometimes referred to as “rolling over” the loan), you get a chance to push back the date by which you’re responsible for repaying the loan in full.
Many payday lenders will give borrowers an option to renew their loans. However, every state has different regulations in place when it comes to how many times you can renew your payday loan.
How Does it Work?
If you want to renew your loan, you’ll go to your lender and let them know that you’re interested in taking this approach.
It’s important to do some research beforehand to figure out what loan renewal options are available in your state. Some states have limits on the number of times you can renew a loan, and others ban it altogether.
If your state (and your specific lender) does allow loan renewal, you’ll pay a small renewal fee. This then gives you more time to pay back the loan.
Keep in mind that the fee you pay at the time of renewal does not go toward the principal and interest of the loan.
Loan Renewal Benefits
There are definitely some benefits that come with renewing a payday loan. Some specific reasons why you may want to consider this include the following:
Give Yourself More Time
The most obvious benefit of payday loan renewal is the fact that it can give you more time to repay your debt. If you know you have a great deal coming your way and you just need a little more time, renewing your loan can be a good in-between measure.
Avoid Late Payment Penalties
If you can’t pay your loan back on time but don’t do anything to renew it, you’ll often end up with some hefty late payment or delinquent fees. If you’re already strapped for cash, unnecessary late fees (which are often much higher than renewal fees) are the last thing you need.
Rolling over your loan also saves you from having it sent to a collections agency if you go too long without paying it back. No one wants to deal with the negative consequences of having a loan sent to collections, and putting a renewal plan in place early can help protect you from this.
Is It Right for You?
If you’re on the fence about whether you should renew your loan, there are some questions you may want to ask yourself. The answers to these questions can help you determine whether or not it’s a good option:
Can I Afford to Pay Back the Loan?
If the answer to this question is “no,” renewing might be your best and/or only option. If you can’t repay, you can’t just sit back and pray that the loan goes away. It definitely won’t, and you’ll find yourself in worse trouble later.
Will I Be Able to Pay the Loan Back Soon?
Renewing can be an especially good option if you know that you will be able to pay the loan back soon. If you just need another couple of weeks before a business deal goes through, for example, renewing will help you buy some extra time.
What are the Renewal Terms and Fees?
Be sure to consider the renewal terms and fees associated with your particular lender. Make sure their fees are reasonable so you don’t end up paying more than the loan is worth.
What Do My Business Partners Think?
If you took out a payday loan as part of a business plan, be sure to talk to your business partners (if you have any) before making decisions. After all, your partners deserve to have a say in how you approach the issue.
How to Apply for Loan Renewal
If you’ve decided that renewing your loan is in your best interests, there are some specific steps you’ll need to take to move forward. The process is pretty straightforward, and it usually goes something like this:
Do Your Research
Start by figuring out what the renewal regulations are in your state. Make sure you live in a state that allows renewals, and don’t forget to find out how many renewals are available to you.
Talk to Your Lender Early
Reach out to your lender and let them know your situation early. Don’t wait until your loan is already past-due to contact them. The sooner you address the situation, the easier it will be for you to roll your loan over and get back on track.
Review the Paperwork
Be sure to review the paperwork carefully before signing anything. This will help you know exactly what you’re agreeing to and avoid getting roped into anything you’re not prepared for.
Make a Repayment Plan
Don’t forget to put a plan in place to repay your loan as soon as possible. Renewing it once or twice can be helpful. You shouldn’t bank on rolling it over forever, though.
You may also want to read on here to learn more about the renewal process, especially if you’re located in the Kansas City area.
Renew Your Loan Today
As you can see, there are definite benefits to payday loan renewal, especially if you go about it the right way.
If you think renewing your loan is in your best interests (or the best interests of your business), keep the tips listed above in mind. They’ll help you secure your renewed loan and get it paid back on time.
Do you want to learn more about loan options and money management? If so, give some of our other finance-related articles a read today.