What Happens If I Can’t Pay My Payday Loan?
A payday loan is a great option if you need quick cash to get you to your next paycheck. If you don’t have good credit or can’t get approved to borrow other types of loans, this may be a great option. Although it is possible to obtain a payday loan, the financing option can be very costly.
What happens if you default on a payday loan?
Paying off a payday loan late can have serious consequences. These include:
Additional fees and interest may apply depending on where you live or which lender you choose. These fees are known as non-sufficient funds fees and are charged if you don’t have the funds to pay for a transaction.
Collection of debt
For approximately 60 days, your lender will try to collect payment on your behalf. If they don’t receive it, they will likely hire a third-party collection agency. The debt collection agency will likely call you on a regular basis and send letters to you until they get the money. Their collection efforts will be far more aggressive than your lender’s.
Credit score damage
Your credit score should not be affected if you pay off your payday loan on time. But your credit score will drop if your payday loan is late or your debt is taken to collection agencies.
Even though you have only defaulted on a very small amount, it is possible that a collection agency may take you to court. This could lead to liens on your property or wage garnishment depending on where you live.
Difficulty in securing future funding
A payday loan default can remain on your credit report for up to seven years. This could make it difficult for you to get approved for any other loans.
While it is illegal for a lender or bank to threaten you with jail or arrest, they might do so. This type of threat should be reported to your state attorney general immediately.
How to rebuild credit after defaulting on a payday loan
It’s clear that defaulting on payday loans can cause you great stress and uncertainty. There are many ways to rebuild your credit and lessen the severity of the situation. These are some helpful tips.
Get extra income
You can get current with your payments. If you don’t have enough cash to pay your debts on time, you might want to cut back on expenses or find a side job. Professional help may be available for credit counseling, debt management, or debt consolidation.
Make sure you pay your bills on-time
Even one late payment can cause credit damage. It is crucial to pay your bills on time. You can set reminders on your calendar or sign up for automatic payments if you are worried about forgetting. You can make sure your car loan, mortgage, and credit card bills are paid on time.
Think about your credit utilization ratio
Your credit utilization is the ratio of the credit you use to the credit you have available. Credit utilization should not exceed 30%. The lower the number, the better. You can achieve this goal by keeping your spending low and your balances low.
Regularly check your credit reports
Make it a habit of checking your credit reports. You can visit AnnualCreditReport.com and get an annual free copy of your Experian, Equifax, and TransUnion reports. Sign in to get your Experian credit reports for free every 30 calendar days. Be aware of any negative marks that could be affecting your score.
You can still move forward after defaulting on a payday loan
You will need to work hard to repair your credit and overcome this financial obstacle if you default on a payday advance. There is a silver lining. You’ll be a better borrower after this experience and will likely avoid similar financial problems in the future.
payday loan lenders
repay the loan
repay a payday loan
consumer financial protection bureau