Defaulting on any loan is bad news and reflects negatively on a person’s ability to re-pay debt, but not all lenders report defaulting loans or local laws prevent them from doing so. However, people have to know that there are many consequences to defaulting on cash advance payday loans and that these loans should be taken seriously in order to avoid further headaches, fees, and negative credit history.
WHAT IS A “PAYDAY LOAN”?
Payday loans are short-term loans structured to be repaid before or on your next payday, usually within two weeks. Payday loans have become extremely popular over the past few years. Even big lender Wells Fargo has added payday loans.
The loans don’t have installment payments so credit checks and other traditional forms of verification are not needed, thus making them appealing to those that need cash and don’t want to use traditional methods for obtaining it. However, these loans come with a fee for their services, and the fee is based on a percentage of the amount borrowed. Many states cap this amount, but some do not. In addition, many states cap the amount that can be borrowed as well, and some even cap the number of times a person can have a payday loan in a given period.
The loans are given to people based on a secured account with a bank. Money is quickly deposited into a person’s bank account, but the lender now has access to the funds and can repay the loan based on information that was given about this account. Not all lenders do this, but most will secure the loan with a bank account and either have the person give them a blank check, or wiring information to be able to debit the account.
Payday loans are intended to be paid back in full when they are due. If not, there would be more fees to refinance the loan again, but with no additional money given. Now, the loan fee has doubled since the person didn’t pay the first one and is not getting a second one. This can go on for quite some time and put people into further debt. This is where most people end up getting into default on these loans because the fees associated with paying them back have gotten so out of hand because the person didn’t pay the original loan back when due.
WHAT HAPPENS IF I DEFAULT ON A PAYDAY LOAN?
As with any loan, defaulting on it can be serious business and could complicate matters even further. There is no easy way to get out of it: if you signed on the dotted line, then you are legally obligated to repay the loan on time. Many negative consequences could result from the failure to repay a payday loan on time:
- Bank Fees: Given the fact that the loan is secured with a bank account, the lender will keep trying to collect on the loan from the given bank information even if there is no money in there. They will do this regularly until they get their money. Although this doesn’t seem like a big deal because they can’t get the money if it’s not there, the bank may charge a fee every time they try to collect and the funds are not available. If they are depositing the check, the borrower is going to get hit with a bank fee every time they deposit.
- Garnishment of Wages: Not all states allow this, but some do. It’s is important to check with local laws to find out what the borrower and lender rights are for that area.
- Phone Calls: Although this may not be a big deal for some, this can be quite annoying. Lenders will hire agencies and other collecting services to continually call and follow-up on money owed and they can be relentless.
- Legal Action: Payday loan lenders routinely sue defaulted borrowers. The borrower will not only owe the payday loan, with interest and fees, but also additional fees for court costs and/or attorneys fees.
YOUR OPTIONS
There is a lot of political debate as well as power teetering about payday loans these days and whether or not to continue regulating them, ban them altogether, or make a reasonable way of tracking and distributing these funds so that people don’t find themselves in trouble. The key argument is that these loans pray on low income people and put them into a cycle of debt that makes it hard to get out of. Bankruptcy may be good option for you if you have defaulted on your payday loan(s) and are unable to pay them.