What Happens If I Can’t Pay My Payday Loan?
A payday loan is an excellent 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 call you regularly and send letters to you.
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 minimal amount, 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 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.
I Cannot Pay Off My Payday Loan. What Will Happen?
Your cheque is now with the payday lender. On the day it’s due, it can cash it. Your check will be returned unpaid if you don’t have sufficient funds. Your traditional financial institution and the payday lender will assess you with a fee.
There is a possibility that the payday lender could attempt to cash the check more than once. The financial institution will assess an overdraft fee each time the check is returned unpaid.
A debt collector will not be able to garnish government benefits. Loans till the next paycheck are not the same. You grant the payday lender permission to withdraw money from your account if you write a check drawn on the invoice or authorize the payday lender to remove money straight from the account. This is true regardless of the sort of funds.
The payday lender may transfer your outstanding balance to a collection agency at some time in the future. In the end, you could be responsible for paying back the amount that you borrowed in addition to the fee, any overdraft penalties or fines for rejected checks, any potential collection fees, and any possible court expenses if the payday lender or collection agency sues you.
Can My Bank Help Me?
Maybe. Please make an effort to communicate with your bank representative, either in person at one of its branches or over the phone with its customer care department. Describe the current state of affairs. Inquire with the financial institution about the possibility of having any fees or charges that have been applied to your account as a consequence of the bounced check removed. If the money from your payday loan is being withdrawn automatically from your bank account, you should contact your bank and ask them to halt the automated deductions.
There is a possibility that you will be able to cancel the check’s payment, shut your existing bank account, and then start a new bank account. Before you go ahead and do this, you should first consult a lawyer about this possibility.
How To Rebuild Credit After Defaulting On A Payday Loan
Defaulting on payday loans can cause significant 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. You can set reminders on your calendar or sign up for automatic payments. 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 your credit to your available credit. Credit utilization should not exceed 30%. You can achieve this goal by keeping your spending low and balances low.
Can I Inquire With the Payday Lender About the Possibility of a Payment Plan?
Yes. If you notice your payday lender that you will not be able to pay back the loan when it is due, the lender must inform you that you may have an installment plan at the time of the loan’s due date earlier. Even if this is your first loan (a payment plan), this is true.
Any plan of this kind has to be documented in writing. It has to be signed by both you and the lender.
If the loan amount is less than $400, the plan must be at least 90 days long (3 months). If your loan is for more than $400, your payment plan’s minimum number of days is 180. (6 months).
Does the payment plan come with any additional costs attached to it?
If you are late with a payment on your payment plan, the lender may initiate the collection process on your defaulted debt and charge you a one-time $25 default fee.
Your financial institution is not permitted to charge you a fee just for agreeing to an installment plan.
I Have an Overdue Payday Loan. Should I Deal With It by Paying a Fee and Taking Out Another Payday Loan?
No, any payday lender that requires you to pay an extra charge to “roll over” your payday loan and make the total amount due later violates state law. “Rolling over” a payday loan means extending the due date for the entire loan. Talk to the DFI.
If you have an outstanding loan, you must pay it off before you may get another loan from the same lender in the state of Washington. Avoid taking out a second payday loan to pay off the first one you took out to avoid falling into a debt trap. Because obtaining one of these loans is so simple, you can deceive yourself into thinking that repaying it would be a breeze. It’s possible to become stuck in a loop where you pay off one debt, then promptly take out another one to meet additional expenses. This loop is difficult to break out from.
You may wind up taking out many loans within a year if you take out a new loan every time you pay off the previous loan or cover additional expenses. You will pay a significant amount more in interest, fees, and other expenditures than you ever intended to borrow. Try some of the alternatives that are discussed here.
You Can Still Move Forward After Defaulting On A Payday Loan
If you default on a payday advance, you must work hard to repair your credit and overcome this financial obstacle. There is a silver lining. You’ll be a better borrower after this experience and will likely avoid similar financial problems in the future.
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