As the cost of living continues to rise, a lot of people are now having a hard time even paying for their regular monthly expenses.
It’s not enough to have a stable job nowadays, as managing your finances will now be dependent on how much money you are earning. And this does not yet include the possible emergency expenses that can occur at any time.
Regardless of the situation, whether it is an emergency expense or they do not have enough money to pay their monthly expenses, many people turn to the loan lending industry for financial help.
It can be pretty hard to find what you need with various loan types out there, such as personal loans, payday loans, and title loans. However, one loan type has gained tremendous popularity, thanks to its lack of requirements and fast service.
We are talking about online payday loans. Below, we will speak of default on a payday loan consequences and how to deal with such a situation.
Payday loan default consequences
Payday loans are known for their very high-interest rates and overdraft fees that occur if you fail to pay back the loan on the due date.
If you have taken out a payday loan to deal with an emergency financial situation or pay your monthly bills, and now you are stuck and unable to repay it, there are still some options you may take advantage of.
But first, let’s review the consequences of defaulting on a payday. You can read more downsides to not paying your loans here.
You really should consolidate your payday loans before it is too late.
Credit score consequences
- Credit score consequences
If you fail to repay your payday loan on time and you do not have an arrangement for an alternative plan for repaying it with your lender, you can expect your credit score to take a hit.
In cases where borrowers default, the loan lending companies usually sell the debt to an agency to collect it. That collection agency or debt collectors will then report the unpaid payday loan to the major credit bureaus.
- The collection agency reporting you to the credit bureaus will not be your only problem. These agencies are known for their aggressive collecting methods and perform credit checks. They will not stop until they get you to repay the money. They may start calling you at your workplace. If that is not enough, they may start calling your family and friends and ask for the payment.
- Once your credit score has suffered a hit due to a payday loan default, you will pretty soon see that it is going to be much more challenging to get another loan or a credit card.
- Debt management. Even if you manage to repay the loan at some point, that will not reduce the damage to your credit, as collection agencies’ action will stay on your credit report for years to come.
You could be sued in civil court
If you fail to repay your payday loan, the payday loan lending company has the right to sue you to collect the money you have not repaid.
After the payday loan lending company gets a court judgment against you for the money you owe, the payday lenders can then seize the property (not without the assistance of an officer of law enforcement) and then sell it to pay for the loan balance.
Unlike a secured loan, use specific property as collateral, with debt judgment, you can repay the debt by selling off any property you own.
- In almost all of the states in the U.S., court debt judgments last for 10 years. That means that if a payday loan lending company has a judgment against you, that lender has the right to seize whatever property you acquire within the next ten years after the judgment, unless, of course, you manage to repay the loan within that time.
- Although a payday loan lending company can sue you to collect the amount of your payday loan, defaulting on a payday loan is not a crime. Therefore, if you fail to repay your loan, you are not a criminal. Some collection agencies have the habit of threatening borrowers with criminal actions. You will in no way be in jail unless planning not to repay the payday loan was the reason you got it in the first place. If a collector threatens you with an arrest, you should immediately contact a lawyer.
You should expect to pay extra fees and interest
- You should expect to pay additional fees & interest
The more time you go without repaying your payday loan, the more money you owe to the payday loan lender.
Payday loan lending companies normally charge incredibly high fees and interest rates (the annual percentage rate can go up to 550%) for non-payment.
Therefore, you can quickly find yourself in a situation where you own $1000 for a $250 payday loan that you have taken out a few months back. Search search.
There are certain states where the payday loan law regulations forbid payday loan lenders from exceeding a specific limit when charging interest and fees for loan non-payment.
However, in states such as Texas, a payday loan lending company can charge as many fees and interest rates for non-payment as the company sees fit.
What to do if you are unable to repay your loan
In case you cannot manage to repay your payday loan, there are still some things you may try:
- Try qualifying for an extended payment plan (EPP)
- Contact a credit counselor
- Try negotiating with the payday loan lender directly
- You can file a complaint with the Consumer Financial Protection Bureau
- You can also try filing a complaint against your payday loan lending company through a state agency
Whatever action you decide to take will be better than taking no action at all.
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I am David, economist, originally from Britain, and studied in Germany and Canada. I am now living in the United States. I have a house in Ontario, but I actually never go. I wrote some books about sovereign debt, and mortgage loans. I am currently retired and dedicate most of my time to fishing. There were many topics in personal finances that have currently changed and other that I have never published before. So now in Business Finance, I found the opportunity to do so. Please let me know in the comments section which are your thoughts. Thank you and have a happy reading.