What Happens If You Fail To Pay Your Payday Loan?
Payday loans are an excellent way for you to borrow money in emergencies. You have paid all your bills on time, and you are current with your payments. What happens if your payday loan is not paid on time?
What is a Payday loan?
Payday loans are short-term loans of approximately $500 that you repay by your next payday. They are available in your area, as well as online—more than 23,000 payday lenders in the United States, nearly twice as many as McDonald’s.
Payday loans aren’t subject to a repayment schedule, unlike other loans. You will receive $500 in one lump sum if you borrow $500.
A postdated cheque will be required for the amount of your payday loans. These fees and interest include any additional costs that might be charged between the time you take out the loan and the due date. Personal loans typically have an APR between 15% and 30%, while payday loans can go up to 400%.
Repayment times can vary depending on which payday loan lender you choose and when you get paid.
What happens if you don’t repay your payday loan?
When you apply for a payday loan, many lenders will not check your credit history. Payday lenders don’t match your creditworthiness like other lenders. This is an excellent option for people with bad credit ratings.
It’s not unusual to renew a loan. The Consumer Financial Protection Bureau states that 80% of payday loans can easily be transferred into another loan within two weeks. To avoid defaulting on your loan or falling behind in payments, you can get another loan. Payday lenders won’t mind you taking out another loan.
There is a risk that you will fall behind on payments or default on your loan. This is known as default. A debt collector may contact you to request a repayment of your loan in full. Payday loan repayments are a common concern for many borrowers.
Defaults on payday loans can cause adverse credit effects
If you fail to pay your bills on time, your credit rating could be damaged.
Rob Drury, the executive director of Association of Christian Financial Advisors, stated that defaulting on a payday loan will be considered credit delinquency. Credit scores are most affected by negative information, delinquent accounts, and other factors.
FICO credit scores are based on five factors:
- Payment History – 35%
- The amount due – 30%
- Credit history – 15 %
- Credit Mix – 10%
- New Credit – 10%
Late payments can have a significant impact on your credit score. If you fail to make payments on your credit cards, student loans, and car payments, it can cause damage to your credit score. Payday loans are not an exception.
If you default on a loan, your credit score could plummet. Negative marks, such as defaulting on a mortgage, can stay on your credit report for up to seven years. These negative marks can significantly impact your future borrowing options, regardless of whether you are buying a house or a car. Property owners may check the credit of potential renters, which could impact your chances of getting an apartment.
Even if you can get a loan, it is possible to have higher interest rates. Higher interest rates will result in higher monthly payments and a longer loan term. This could impact your budget negatively, especially if you don’t have enough funds to make large monthly payments.
Is it possible for me to garnish my wages to get a payday loan?
Wage garnishment is when your employer sends a portion of your wages to creditors, such as a payday lender.
Payday lenders can’t garnish your wages without a court order. If you fail to pay the loan back, a lender can sue you, whether it is a bank, credit union, or online.
If you don’t dispute the claim or the lender wins, the court can issue a judgment against you to repay the money. With a court order, lenders can garnish wages.
Drury says it all depends on where you are located. “Texas, for example, doesn’t allow wage garnishment to collect consumer credit.”
Can I go to prison if I fail to repay my payday loan?
Every rule is not perfect. It is possible to be imprisoned for not repaying a payday loan.
Drury stated that you could not go to jail in the U.S. for simple indebtedness. “If the borrower has a genuine intent to repay the loan, they can be sent to jail for fraud or theft.”
If you are sued because you have not paid a loan, a judge may warrant your arrest. You should not ignore a court order that you must appear in court. To help you prepare for court and handle a warrant, consult a lawyer.
What can you do if your payday loans are not paid?
If you are having trouble repaying your payday loan, there are some things you can do.
- Extend the Loan
This option is popular with payday loan borrowers. A loan agreement amendment will be necessary. This will provide new terms and lower interest rates. This will allow you to take control of your finances.
- Get a personal loan
Personal loans and payday loans are two completely different things. Payday loans can be paid off with a personal loan. Then, you can focus on your personal loans payments.
Personal loan interest rates are lower even if you have poor credit. Once you are approved, you can negotiate terms and conditions with your private loan lender. Just like you, lenders won’t allow a default on your payments. Lenders can be very responsive when it comes to creating a repayment plan that you both agree on. You can make monthly payments instead of one lump sum payment in a few weeks.
- Ask for help
You can borrow money from your family and friends to pay off a payday loan debt.
Your family may not provide the same support, so it is vital to have a contract. It is essential to clearly define when repayments will be made, what the monthly dues will be, and what you will do if the original plan falls apart. Both parties should be satisfied with the contract. It shows you care about their business and that you want to earn their trust.
Are you a believer in consolidating payday loans?
To consolidate payday loans, you will need to talk to your lender to negotiate a lower monthly payment plan. Payday lenders will typically ask for one lump sum and not multiple monthly payments. This could make it more challenging to get a loan.
To consolidate your debts, you can also look into a consolidation loan. You can use a personal loan to repay your payday loan at high interest. A home equity loan is possible if you have a home or your credit card allows cash advances.
Credit unions can offer payday loans. These loans can be up to $1,000 in length and last up to six months. Credit union members can only obtain these loans. It is a good idea, however, to contact your local credit union for more information.
What should I do if I’m being harassed by or contacted about a debt collection?
If your payday loan has been in collections for a long time, you might receive many letters or calls regarding payment.
While debt collectors may contact you to discuss your debt, their rights are limited under the Fair Debt Collections Practices Act.
FDCPA prohibits debt collectors from using misleading language or abusive actions to get your debt paid. You can write to debt collectors and tell them that you don’t want them calling you anymore. The Consumer Financial Protection Bureau can help you report abusive debt collectors.
Paying off your payday loan is a critical step to rebuild your finances and get out of debt. This should not be misused. It is important to learn from your mistakes and get help whenever you need it.