What Happens if You Don’t Pay Back a Payday Loan
A payday loan is an excellent solution if you require some quick cash to see you to your next paycheck. It is one of the currently available loans for bad credit. This is especially true if you have poor credit and are unfit to obtain other types of financing.
A payday loan is easy to obtain (thus its growing popularity among borrowers). However, it is an absurdly expensive financing alternative. In addition, high-interest rates make repayment challenging.
Regardless of the borrowed amount, not paying back a payday loan can have dire consequences. We probably know someone who has failed to repay a payday loan. They often end up playing a game of cat and mouse with the collectors.
According to the vice president of the National Foundation for Credit Counseling (NFCC), this is a game you’re bound to lose.
If, for some reason, you’ve found yourself asking yourself what would happen if you can’t pay back your payday loan. Read on to find out how to know when you are in default of a payday loan.
How to Find Out if You Have Outstanding Payday Loans
Keeping track of your credit score is an excellent way to do so. Traditional loans are reported to credit agencies like TransUnion, Experian, and Equifax. Therefore, checking your credit score is the best approach to find out if you have an outstanding loan.
But payday loans do not request a credit report during the application, so technically, you can get away with a defaulted payday loan, right? Unfortunately, you could never be more wrong. Although they do not report an ongoing or past-due debt to creditors, the credit bureau may eventually find out.
This is what happens. Once you have a payday loan default, the lender will give your information to a debt collector. Collection agents are notoriously infamous for their ruthless tactics. It won’t be long before they are calling your phone after every half an hour. You certainly wouldn’t have a problem discovering the existence of an outstanding payday loan.
The funny thing is, payday loans won’t boost your credit score even if they are paid on time. However, as soon as the lender turns you over to a loan collecting agency, you are bound to end up getting flagged. This harms your credit score and your chances of qualifying for lower interest loans.
What Happens When You Default on a Payday Loan?
Failing to keep up with payments can evoke serious consequences. For instance, can a payday loan company sue you?
After all, you signed legally binding documents when you were applying for the payday loan. Will the lender view this as a breach of contract? It all depends on the moneylender. All in all, here are a few scenarios you can anticipate when you forgo paying off your payday loan.
Additional Interest and Fees
If you don’t repay your payday loan, you may be charged additional fees and interest, depending on where you live and which lender you choose. In addition, nonsufficient funds (NSF) fees are incurred when you do not have sufficient funds to complete a transaction.
Report to a Debt Collector
All lenders prefer obtaining the loan repayments by themselves rather than hiring a debt collection agent. Therefore, they will try to give you as much leeway as possible to complete your unpaid payday loan.
Loss of Credit Score Rating
Your credit history remains unharmed if you repay your payday loan on time. If you default on a loan and the debt is turned over to a collection agency, however, your credit score will suffer.
Challenge Applying for Future Financing
Because a payday loan default can linger on your credit report for up to seven years, you may have difficulty obtaining authorization for other payday loans in the future.
Arrest Threats and Court Summons
Can payday loans take you to court? Even though it is against the law for a lender to threaten you with arrest or imprisonment, they may do so nevertheless. If you get a threat like this, contact the attorney general’s office in your state right soon.
Can a Payday Loan Company Sue You?
So can you go to jail for a payday loan? It is not a criminal violation to fail to repay a debt. Threatening a borrower with arrest or imprisonment is prohibited. Nonetheless, some payday lenders have been successful in filing criminal cases against clients using bad-check rules. Unfortunately, the courts mistakenly rubber-stamp the complaints.
According to the Consumer Financial Protection Bureau, anyone threatened with arrest for nonpayment should notify their state attorney general’s office. Even if the collector filed the criminal complaint incorrectly, you should never ignore an order to appear in court.
How to Rebuild Your Credit After Defaulting Payday Loan
Settle Outstanding Payments
If you don’t have enough money to catch up on your debt payments, you might want to cut back on your spending or take up a part-time or side job. Credit counseling, a debt management plan (DMP), or debt consolidation are all options for expert assistance.
Even a single late payment can damage your credit. As a result, it’s critical to pay all of your expenses on time. Sign up for automatic payments or set calendar reminders if you’re afraid about forgetting. Or apply for flexible installment loans that don’t strain your pocket.
Assess Your Credit Usage Ratio
This is the amount of credit you’re using compared to the amount of credit you have available. Your credit utilization should not exceed 30%, and the lower, the better. Keeping your expenditures and balances low can assist you in achieving your goals.
Final Thoughts
Failing to observe your monthly installments can have dire payday loan default consequences. The only way to guarantee your payday loans online repayments are up-to-date is by keeping close tabs on your credit scores.
Do not ignore a debt, hoping it will magically vanish – it won’t. Leave any questions in the comment section below, and we will get back to you.
References:
- https://progressivedebtrelief.com/blog/f/how-to-find-out-if-you-have-outstanding-payday-loans
- https://www.cnbc.com/2020/07/07/new-payday-loan-rules-could-leave-millions-of-americans-exposed-to-debt-trap.html
- https://loans.usnews.com/articles/alternatives-to-costly-payday-loans
- https://en.wikipedia.org/wiki/Payday_loans_in_the_United_States
Thomas Morgan is a treasured writer and a financial expert for our website. Readers acknowledge his mastery over every topic and follow him on other platforms for important information. He is also the founder of lendertraining.com, QuickStart Publications, and MortgageManuals.com. In 1983, Thomas got into the mortgage business after completing his academics at the New York University. He also collaborates with big names such as American Residential-Chase, Fannie Mae, Citibank, and his entity known as Hamilton Mortgage. His grip over lending topics is evident because he has handled multiple positions such as underwriting, processing, quality control, closing, and many others. Morgan is also equipped with the essential requirements and works in sync with the company operators for training manuals, procedures, and other operating policies.
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