Defaulting on a Payday Loan – What You Need to Know
There are a lot of people who take out payday loans and then end up in debt. When it comes to defaulting on a payday loan, it can mean a lot of trouble for you. In this article, we’re going to take a look at what happens if you default on a payday loan and what you can do to avoid getting into trouble.
If you find yourself in a situation where you can’t repay a payday loan cash advance, there are several things that you need to know in order to protect yourself. First and foremost, it is important to keep in mind that defaulting on a payday loan can result in substantial penalties, including interest and fees that may add up to quite a bit of money. On top of that, your credit score may be affected if you halt on a payday loan, which could make it harder to get loans in the future. And finally, if you have children who are also living at home and are relying on you to support them financially, failing to repay a payday loan could put them at risk of being homeless or living in poverty.
What Could Happen When You Default on a Payday Loan?
If by now you want to be sure what is a payday loan, simply put, they are instant cash loans that you can get at any time. Now that we have covered that let’s see what can happen if you default on payday cash loans. First and foremost, your credit score can take a bad hit. If you halt on a payday loan, it will be shown on your credit report, and that will affect your possibility of getting loans in the future. Second, the lender can or collection agency can sue you for the outstanding balance. This means that if the court rules against you, the lender can seize all your stuff. So, before you take out this type of loan, make sure you are able to repay it back in time.
Additional fees and increased interest
As much as a payday loan can be a great thing, since you can get the money instantly and even online, you need to be aware that if you halt the loan, there are huge fees associated. If you don’t repay back a payday loan on time, there are additional fees and increased interest that can occur. For example, if you miss a payment by three days, the lender can charge an initial late fee of $25 and then add an additional 36% interest rate on top of the original rate. And if you miss a payment by six weeks, the interest rate can increase to over 500%. With all those additional fees and charges, you can end up in debt very fast.
So far, we have been talking about a thing that will happen if you default on the payday loan. Don’t think that if you try to withdraw money from your bank account, you will avoid giving the lender money back. There are two things that can happen if you try this.
If you have a direct deposit set up at your bank, the lender may try to take your money out that way. If you don’t have a direct deposit, the lender may try to garnish your wages or seize your assets.
There are also criminal penalties for defaulting on a payday loan, including jail time and hefty fines.
Debt collection by a third party will be involved
As we have already mentioned above, in the case you halt the loan, your lender can either go after you for the money or can sell your case to a debt collection company. This can include sending letters, making phone calls, or even visiting your home. If you can’t afford to pay back the loan, the third party may take legal action to collect the money.
Credit score deterioration
Defaulting on a payday loan can have serious consequences for your credit score. If you default on a payday loan, the lender may report this as a credit utilization event and your credit score may suffer as a result.
Here are three ways that defaulting on a payday loan can impact your credit score:
- Credit utilization will increase. This is the percentage of your total available credit used in the past month, and it’s one factor that lenders use to measure your risk of default. A CUR of 50 percent or more indicates high risk and could lead to penalties from lenders. A CUR above 30 percent could cause your credit score to drop by up to 30 points.
- You will be added to the credit blacklist. Lenders use a variety of factors, including historical debt payments and current credit utilization, when deciding whether or not to add an individual to their credit blacklist. If you’ve added to a blacklist, you’ll likely have difficulty getting approved for future loans and may be able to pay more in interest charges than if you had been approved without a black mark.
- APR will increase. In the case you default payday loan, the APR is going to be calculated from the beginning from 391% to 521%.
For the 20$ per 100$ borrowed on a 375$ loan, the math will look like this: 75 ÷ 375 = 2 x 365 = 73 ÷ 14 = 5.21 x 100 = 521%.
In the case that lender takes legal action against you or the collection company they have sold your case to, you can be summoned to court. If this happens, it will be in your permanent record, and it can damage your reputation and the possibility of getting good deals for money borrowing in the future.
What Are Your Alternatives If You Can’t Pay Back Your Payday Loan?
Don’t worry if you are unable to repay the payday loan back. There is still something you can do to change that. First, try to find a way to make the required payment over time. This may include setting up a direct debit or using an installment plan. If that doesn’t work, you can contact the lender and ask for a hardship conversion. This will allow you to convert the loan into a longer-term loan with a lower interest rate. Finally, if all else fails, you may need to file for bankruptcy to get rid of the debt completely.
How to Rebuild Credit After a Payday Loan Default
By now, you know that this type of loan can hurt your credit if you halt it. But here’s how to rebuild your credit after a payday loan default.
The first step is to contact the loan company and attempt to negotiate a repayment plan. In the case you cannot repay the loan in full, try to work out an arrangement where you pay back smaller amounts over time. If you have existing credit scores, make sure to keep up with your payments and keep the loan company updated on your progress.
On the other hand, if you cannot afford to pay back the loan, consider filing for bankruptcy. This will protect your assets from being seized by the lender, and it may help your credit score if you have bad debt elsewhere in your history.
How to Get Out of Payday Loan Debt for Good
A lot of people have been affected by this loan, so we will give you some advice on how you can get out of debt in case you default on them. Here’s what to do if you’re struggling to pay back a payday loan.
First, try to get in touch with the lender and work out a payment plan. Many lenders will be willing to work with you if you can show that you’re dedicated to paying off your debt. If that doesn’t work, consider filing for bankruptcy. This may be your best option if you have an income and assets that can help you repay your debt. It’s important to remember that bankruptcy will only help you get out of debt. It won’t solve the problem of finding new financial resources.
When it comes to payday loans, they can be an amazing shiny solution when you need the money fast and easy. Because of that, a lot of people end up in unexpected debt. No need to be ashamed of that, since it happens a lot.
Here we discussed more what happens if you default on the payday loan, so you can be prepared and know what to do. In the case you took out a payday loan, with the information here, you can avoid defaulting on the loan and avoid debt also. Make sure to consult with an expert as well.