What Can Happen If You Don’t Pay Back A Payday Loan?

by GB Loan Financial Adviser

Consequences of not paying your payday loan on time can be serious. Defaulting on a payday loan can lead to a hefty bank overdraft fees, damage credit score, constant collections calls, court summons and garnishment of your pay check if the court has ordered it. In such scenario, you have the option to file for bankruptcy or settle the debt for less than what you owe.

Understanding these consequences will help you avoid getting into trouble. Prevention is always a better option. You may not have enough cash in hand to fix your car that broke down all of a sudden or to pay for that urgent bill. Perhaps, you do not have enough cash to get through until your next payday. Such need for immediate cash must have driven you to a payday loan lender. If you are worried about applying for this loan and paying it back then you should first get informed and learn what can happen if you default on a loan.

Whenever you are in need of quick money, Payday Loans may seem like a favourable solution. But this loan can prove overwhelming, if you are already struggling to pay off your debts. Easy access to money and high cost fee are the main reasons behind payday loan default. To qualify for this loan all you need is an ID, a checking account and a source of income. Lender will then offer you a certain amount of money for a fee and for the loan repayment you need to write a post-dated check or give the lender permission to withdraw funds from your bank account on the due date. You are less likely to give a second thought about how much the loan costs. Lenders may charge APR of 400% or more. Due to such high cost fee many people risk defaulting. Refinancing can further make it even worse.

The first step that you can take if you are in risk of defaulting is to contact your lender, explain your situation and attempt to negotiate your payment terms. They may offer you a repayment plan that will help you avoid having your loan send to collections and court summons. When you do not opt for any negotiation and fail to pay back lender will try to collect your debt by withdrawing the amount from your bank account. If there is insufficient money, they will continue trying and may also break up the loan into smaller parts. Every time the lender attempts to withdraw cash and your bank balance is insufficient, bank may charge you overdraft fees.

If the lender fails to withdraw the money, they will use the contact information provided by you and phone calls will start. They will also try to contact you through emails and may even call family members or friends. Lenders may also turn to third-party collection agencies. Such collection agencies can be aggressive and try every tactics to squeeze the money out of you. They will make multiple phone calls at both home and work, may show up in person, threaten to notify the credit bureaus and sue you.

Payday loans are meant to help you tide over until your next payday. But they can also put you into serious debt trap. Therefore, consider such a short-term loan only for true financial emergencies. Take your time to compare the options, review the terms and conditions of the loan deal, and ask questions to lenders to resolve any concerns.