Many people are now having difficulty paying for their monthly expenses as the cost of living continues to rise.
It’s not enough to have a stable job nowadays, as managing your finances will depend on how much money you earn. And this still needs to 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.
Short-term loans have become a popular solution for many, as these loans allow borrowers to get the funds they need quickly without being tied down by long-term commitment or high monthly payments.
It can be pretty hard to find what you need with various loan types, 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.
Choosing an online lender can make the process even more convenient, as you can apply for these loans from the comfort of your home and receive the funds directly to your bank account.
Always remember to choose a reputable lender and make a plan for your loan payment to ensure you borrow responsibly and can handle the debt without damaging your financial health.
We are talking about online payday loans. Below, we will speak of default on a payday loan consequences, loan agreement, repayment plan, and how to deal with late payments and finance charge.
Payday loan default consequences
Payday loans are known for their high-interest rates, overdraft fees, and finance charge if you fail to repay the loan on the due date according to the loan agreement.
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 or follow the repayment plan, there are still some options you may take advantage of.
But first, let’s review the consequences of defaulting on a payday loan and how it affects you in case of late payments. You can read more downsides to not paying your loans here.
- Credit score consequences
Suppose you fail to repay your payday loan on time and need an arrangement or alternative plan to repay it with your lender. You can expect your credit score to take a hit in that case.
In cases where borrowers default, the loan lending companies usually sell the unpaid debt to an agency to collect it. That collection agency or debt collectors will then report the unpaid payday loan to the major credit reporting agencies.
- The debt collection agencies reporting you to the credit bureaus will not be your only problem. These agencies are known for their aggressive collecting methods and for performing credit checks. They will only stop once they get you to repay the money. They may start calling you at your workplace. If that is not enough, they may call your family and friends and ask for the payment.
A debt consolidation loan can be a solution to help you manage multiple debts to avoid these consequences. However, it is essential to carefully evaluate your financial situation and discuss your options with a financial advisor before proceeding.
- Once your credit score has suffered a hit due to a payday loan default, you will pretty soon see that it will be much more challenging to get another loan or a credit card. This can largely be attributed to your payment history and an increased credit utilization ratio.
- Debt management plan. Even if you manage to repay the loan at some point, that will not reduce the damage to your credit, as collection efforts by 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 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 terms and the original loan balance.
Unlike a secured loan, where you use specific property as collateral, with a post-dated check and a debt judgment, you can repay the debt that resulted from the original loan by selling off any property you own.
- In almost all of the states in the U.S., court debt judgments last for ten 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 you manage to repay the loan within that time, which could involve bank fees, student loans, or other property tied to financial institutions.
- 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, you are not a criminal if you fail to repay your loan. Some collections agencies habitually threaten 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 associated with the loan, including additional bank fees and costs from financial institutions that may be involved.
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 lender. Compared to a traditional loan, payday loans can accumulate significant loan costs.
Payday loan lending companies normally charge incredibly high fees and interest rates (the annual percentage rate can go up to 550%) for non-payment, which can be even higher than bank overdraft fees and other unsecured debts.
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 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.
While tax refund cash advance emergency loans can seem like a lifesaver, it’s important to carefully consider the risks before taking one out. These loans often come with high-interest rates and fees, making them costly in the long run. Some lenders may charge up to 200% APR on these loans!
Additionally, not all lenders are reputable, and some may engage in predatory lending practices that trap borrowers in a cycle of debt. That’s why it’s crucial to do your research and only work with established lenders with good reputations. Before applying for a loan, check your credit history and make sure you understand your credit limit. Always try to pay your loans on time to avoid penalties and extra fees due to insufficient funds.
If you decide to take out a tax refund cash advance emergency loan in 2023, read the terms and conditions carefully before signing on the dotted line. Understand how much you’ll owe in interest and fees when payments are due and what happens if you can’t make your payments on time. Keep track of your credit utilization rate to maintain a healthy credit score.
Remember, defaulting on a payday loan can lead to serious consequences such as damaged credit scores, aggressive debt collection tactics by third-party debt collectors, or even legal action taken against you. Always proceed with caution when taking out these types of loans. Consult a bankruptcy attorney if you find yourself overwhelmed by debt.
Operating across the United States, our company is dedicated to providing financial services to needy individuals. We understand that unforeseen circumstances can sometimes lead to financial strain, and we aim to offer assistance through our payday loan services. In order to serve our customers effectively, we have established a strong presence in various states across the country. Below is a comprehensive list of American states where our company operates, ensuring we can support individuals in those regions during challenging times.
|Alabama – AL
|Alaska – AK
|Arizona – AZ
|Arkansas – AR
|California – CA
|Colorado – CO
|Connecticut – CT
|Delaware – DE
|District Of Columbia – DC
|Florida – FL
|Georgia – GA
|Hawaii – HI
|Idaho – ID
|Illinois – IL
|Indiana – IN
|Iowa – IA
|Kansas – KS
|Kentucky – KY
|Louisiana – LA
|Maine – ME
|Maryland – MD
|Massachusetts – MA
|Michigan – MI
|Minnesota – MN
|Mississippi – MS
|Missouri – MO
|Montana – MT
|Nebraska – NE
|Nevada – NV
|New Hampshire – NH
|New Jersey – NJ
|New Mexico – NM
|New York – NY
|North Carolina – NC
|North Dakota – ND
|Ohio – OH
|Oklahoma – OK
|Oregon – OR
|Pennsylvania – PA
|Rhode Island – RI
|South Carolina – SC
|South Dakota – SD
|Tennessee – TN
|Texas – TX
|Utah – UT
|Vermont – VT
|Virginia – VA
|Washington – WA
|West Virginia – WV
|Wisconsin – WI
|Wyoming – WY
Here are some statistics about the consequences of payday loan:
|Percentage of payday loan borrowers who default on their loans
|Average number of payday loans taken out per year by borrowers
|Average amount of interest and fees paid per year by payday loan borrowers
|Consequences of payday loan default
|Wage garnishment, damage to credit scores, legal action
What to do if you are unable to repay your loan
In case you cannot manage to repay your payday loan while maintaining a good credit utilization rate, 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, such as Bank account levies, will be better than taking no action.
Frequently Asked Questions
What are the consequences of defaulting on a payday loan?
Defaulting on a payday loan can lead to increased fees, continuous debt, calls from collection agencies, wage garnishment, lawsuits, and severely damaged credit. It becomes harder to obtain loans in the future.
Can you go to jail for not paying back a payday loan?
No, you cannot go to jail for failing to repay a payday loan. Payday lenders can pursue legal action through collections and lawsuits but nonpayment of debt is not a criminal offense resulting in jail time.
How does defaulting on a payday loan affect your credit score?
Defaulting on a payday loan can significantly lower your credit score by up to 100 points or more. It will show as a derogatory mark and severe delinquency on your credit report. Your score will be impacted for up to 7 years until it falls off your report.
Are there options for negotiating with payday lenders if you can’t repay the loan on time?
Yes, payday lenders may offer extended payment plans, deferments, and options to refinance or roll over the loan. Contact them to explain your situation and ability to repay, and request alternate arrangements or modified terms.
What legal actions can payday lenders take against borrowers who default on their loans?
Payday lenders can take legal actions like suing borrowers to collect debt owed, garnishing wages, placing liens on property, charging overdraft fees, sending accounts to collections agencies, and negatively impacting credit scores.