There is some controversy around payday loans. Some sources deem them to be unjust. Some think it's actually the right thing to do – take advantage of someone who is not just themselves. There are even people online asking the following question: “What happens if I don't pay my payday loan?”.
Trying to skip on your payday loans repayment proves to be as effective as shooting yourself in the foot. Meaning, the damage that you do to yourself and your credit report will be much greater than the damage done to the payday lender. After all, he did nothing wrong but got mixed up with an untrustworthy payday loans borrower. Let's take a look at how not paying your payday loan may end.
Table of Contents
- What Is A Payday Loan?
- How Long Does A Payday Loan Stay In The System?
- What Happens If You Default On Your Payday Loans?
- Is There A Possibility Of Getting A New Payday Loan If You Have Defaulted On The Previous One?
- What Happens If You Close Your Bank Account And Disappear From Your Payday Lender?
- How To Reach A Compromise With Payday Lenders If You Can’t Pay Your Payday Loan?
What Is A Payday Loan?
There are many loan products available to consumers. Depending on your needs, credit score, and repayment preferences, you can choose the most convenient to you. The finance expert Kathryn Morrison of South Dakota State University says: “There are many things that can affect the rate of the loan: your credit score, the term (months) to repay the loan, incentives, discounts, down payment, etc. Be sure that terms and conditions are the same before making rate comparisons.”
Payday loans are a type of personal loan which is given for the short term by direct lenders. The most convenient things about payday loans are the speed with which you get approval and the simplicity of the application process. It is not an installment or revolving credit, it is a one-time loan you must repay fully in a few weeks.
Normally the whole amount for a payday loan is returned after the borrower receives his first paycheck. During the signing of the agreement, terms and conditions might state that a payday lender is allowed to extract the loan amount plus the fees directly from the checking bank account of the borrower if the loan is due. Thankfully, it rarely comes to this in practice.
How Long Does A Payday Loan Stay In The System?
How long do payday loan companies keep records? Just like any other type of defaulted payment, payday loans will remain on your credit record for 6 years. Needless to say, if your credit score is less than good, to begin with, defaulting on a payday loan might be very harmful to your credit history altogether.
When you skip paying payday loans, you are basically destroying any chance of getting a personal loan from any traditional lender for the next 6 years, at least. So if you can’t pay back an $800 payday loan it’s not a good idea to apply for one in the first place.
What Happens If You Default On Your Payday Loans?
The scenarios might vary. Payday lenders might try to communicate with you at first by sending you letters, emails and calling you on your phone. If you refuse any channel of communication, there’s a chance they will search for you throughout the network of your friends and family. If you left any of your personal contact information with the lender, they have a right to search for you using all the available information.
Payday loan default might result in direct lenders passing your payday loan agreement and details over to a collection agency.
The lender is also allowed to take you to court. Despite the common scare, it’s impossible to be placed in jail for not paying your payday loan. The court hearing might still appear, and if you lose, you will be stuck with all the expenses. Rest assured, credit bureaus will be notified of the pattern of your behavior and it will be very hard for you to get a second payday loan in the future.
Is There A Possibility Of Getting A New Payday Loan If You Have Defaulted On The Previous One?
There are almost no chances to be approved for any personal loans if you have unpaid exorbitant interest rates from the previous one. For the next six years at least, your credit file will show the initial loan amount, your unpaid debts, and service fee. So debt collectors will be breathing up your neck to collect payment since you didn’t pay back the loan.
Although direct lenders do not report you to credit reference agencies, within their own system your unpaid loan will be showing. So if you are ever in need of a cash advance, do not leave payday loan debt. It will be shared within the network of payday lenders and you might face serious consequences.
What Happens If You Close Your Bank Account And Disappear From Your Payday Lender?
The payday lender has the right to withdraw funds directly from your checking bank account in case you are not paying back your loan on time. So it might lead to the withdrawal of all the funds you have on your account if they match the amount as a payday loan you took out. When a lender will attempt to withdraw the amount from your bank account and fails, there’s a chance he will withdraw smaller amounts in order to cover what is owed.
If you close your bank account to prevent the lender from withdrawing funds from it, lenders might still charge your account. If they succeed, you will owe money to the bank where you had your account.
Also, the lender might pass your loan to debt collectors. Debt collectors might become annoying, to say the least, and they have a right to take you to court.
How To Reach A Compromise With Payday Lenders If You Can’t Pay Your Payday Loan?
Situations do change, and maybe you will find it difficult to repay your short-term loan from your next paycheck. Instead of considering defaulting on your payday loan, it is better to try and find a solution with your lender that would potentially fit all.
There are many ways you can agree with your direct lender on postponing the return of your payday loan. Maybe it will be easier for you to pay it back in small installments for a longer period of time. Or perhaps, your circumstances are so unique that’s payday lender will consider giving you a discount. In any scenario, trying to find a solution together with the lender becomes a much better option than trying to find a way to default on the loan.
When you choose to default on your loan, payday loans stay in the system, and you only create more problems. While working things out with your lender you solve them.