A payday loan can be a boon or a bust for someone who needs extra cash in a hurry. They are easy to get and not expensive if they are repaid on time.
There’s the rub. If they are not paid on time, they are very expensive and can create crushing debt quickly. These loans can be gotten online as well as in cash-advance stores and are intended to cover a cash short-fall between pay checks.
There are some states that have laws to control payday loans, and some don’t allow them. The borrower should research the law in his or her state to know in what ways they are protected.
It is highly unlikely, but if the lender has violated the law, the borrower is in a good position to settle the loan easily. The borrower should notify the state regulator if the lender has done anything against the law.
There are two ways a loan can be repaid. One is in a lump sum at or before the due date and the other is through installments. The lump sum is better, because paying in installments could be disrupted for any reason, and a payment is missed.
This may mean additional fees added to the loan and can be the road to serious debt. When a borrower is not able to make payments, they should inform the lender in writing that they are stopping payments. The lender will send the loan to a collection agency.
Once the loan goes to a collection agency, the borrower needs to notify the collection agency that he or she intends to settle the loan.
The collection agency could rightfully take the borrower to court and sue for the money owed, but most collection agencies would rather agree for a lower amount and get at least part of the loan repaid than spend the time and money going to court over a small amount.
If the borrower has notified the collection agency of his or her intention to negotiate a settlement of the loan and if the collection agency refuses to do this, it is recommended that the borrower contact a bankruptcy attorney for guidance on what to do next.
The loan settlement letter should:
• Be short. Not more than one page
• Give financial information
• Be courteous and polite with no complaining or criticism
• Give details that the lender can understand
• Make a clear offer to settle the debt, so there is no misunderstanding
• Be addressed to the person in charge of the borrower’s account
• Ask for an agreement in writing
Lump Sum Settlement
The first request from the borrower to the collection agency is to give a lower, lump sum to settle the loan. If that’s not acceptable, the borrower can offer to make payments in installments. If the collection agency agrees to a settlement, the borrower can find a debt settlement program that will repay the loan according to the settlement and schedule payments with the borrower.
The letter should state:
• The sender’s inability to pay the debt and any steps taken to remedy the situation
• The sender’s current financial situation
• The amount the sender is offering to pay as a lump-sum settlement
Below is a sample payday loan settlement letter. It is to a collection agency. It should be written in formal business-letter style and sent by certified mail, so the borrower has proof that it was received.
Sample Payday Loan Settlement Letter
Name of Borrower
Address of Borrower
City, State, Zip Code
Name of Collection Agency
Name of Collector Assigned to Borrower’s Account
Address of Collection Agency
City, State, Zip Code
RE: Debt settlement of my payday loan number NUMBER
Dear Name of Collector:
I am not able to make the required regular payments on my payday loan because I am experiencing financial hardship at this time. I understand that I have a debt of $700 and would like to either make a lump-sum payment of $400 or negotiate installment payments over six months.
I took the loan to cover a medical bill for my wife, who needed emergency gum surgery. At that time, I was in a car accident in which I was not injured, but my car was damaged and needed extensive repairs in order to function.
I need my car for work, so I had no choice but to have it repaired. This unexpected event has made it impossible for me to pay the full amount of my loan at this time.
I would gladly pay the full amount, but simply don’t have the money, and would not like to declare bankruptcy. I can be reached at Phone Number or at Email Address if you have any questions. If you agree with my request, kindly send me a letter stating your agreement.
Thank you for your kind consideration of my situation.
Signature of Borrower
Printed Name of Borrower