A payday loan renewal is essentially the act of taking out another payday loan with the same lender after you’ve finished paying-off your current one.
Renewing your payday loan is an extremely common practice – statistics have shown that in the US, borrowers, on average, receive 8 to 13 payday loans per year from a single payday lender.
At the time of your loan renewal, you may be eligible for a better rate and more generous repayment terms than you were the first time around, if you are shown to be a reliable borrower and to have made your payments from previous loans on time and in full.
What is Payday Loan Renewal?
Put simply, a payday loan renewal works by taking out a payday loan with a lender and then essentially taking out another one with the same lender upon expiry of your previous payday loan.
Your loan will ‘expire’ once you have paid-off your previous loan in full.
For example, let’s say you are hit with an unexpected medical bill which comes to a total of $600. If you borrow a $600 loan and pay this off and after one month, you have repaid your lender in full and on time.
However, after this month, your doctor has informed you that you will require follow-up treatment which will cost an additional $600 on-top of the amount you have already paid.
A payday loan renewal is basically the act of taking out another payday loan, usually of the same amount ($600), immediately after the previous one has been fully paid-off.
This is more common than you might think, in fact, 4 out of 5 borrowers renew their payday loan, as they find that the initial loan is not enough to cover the bill or payment, or perhaps have been hit with another unexpected fee, such as a medical bill, a car repair bill or perhaps a vet bill.
Why Might I Need to Renew my Payday Loan?
When you apply for a payday loan online for the first-time, the amount you will repay is based on a few things:
- The interest rate;
- The length, or term, of the loan;
- The payment frequency.
Each of these has a different effect on how much you will pay. Renewing your loan can offer an opportunity to tweak these factors and achieve different needs.
For example, renewing your loan might help you to:
- Lower your overall cost of borrowing;
- Lower your payments;
- Consolidate additional debt and lower payments.
For example, during your loan term, you may be able to switch from an unsecured to a secured loan to lower your interest rate and monthly payment.
You may decide to renew your payday loan for a few reasons. For instance, as mentioned above, in order to consolidate previous debt, but also you could decide to renew as you’ve been hit with another unexpected bill which you need help to cover.
When I Renew my Payday Loan, Can I Borrow a Higher Amount?
In short, yes, you can borrow a higher amount when you renew your payday loan.
Lenders will typically lend amounts of $500 or less to first-time borrowers, particularly if the borrower in question doesn’t have a strong credit history. This is because the lender is risking their capital when they lend and want to ensure that the borrower isn’t at risk of defaulting on a large loan quantity.
However, if you are shown to be a strong candidate in your initial loan, a lender will be more inclined to provide you with a higher amount if you choose to borrow more.
To a lender, a strong candidate is one who has shown the ability to pay-off their first loan on time and in full in each repayment.
In fact, you may even qualify for a better rate on your payday loan renewal if you are shown to be a good lending candidate.
How to Ensure Qualification for a Payday Loan Renewal
A payday loan renewal is not a sure thing, as if you are deemed to be a poor borrower who can’t repay a loan then a lender may not want to risk lending to you, but it’s a fairly common practice in the online lending industry, with 4 out of 5 payday loans being renewed each year.
In order to make yourself more likely to get approved for a loan renewal at a better rate, be sure to take the following steps while paying off your original payday loan:
- Make your payday loan repayments in a timely manner and in full.
- Add to your bank balance whenever possible to improve your average bank balance.
- Declare any increase in income if it arrises to qualify for a better rate.
- Keep an eye on your credit score and report and make sure no errors or mistakes are added to your accounts—and correcting the record when they are.
- Pay any outstanding bills, such as utility bills, property or car rent, or medical bills on time.
- Keep your credit utilization ratio as low as possible by paying off debts on your business credit cards and other lines of credit early.
These practices will not only make you more eligible for a renewal, they’re also good practices in general, which will serve you well in the long run.