Payday loans are a popular option for those who don’t have access to fast cash elsewhere. However, if you can’t pay back what you owe, short-term financial relief can quickly turn into a nightmare.
Depending on how long it’s been since you received the loan, the lender may file a lawsuit against you and threaten to decorate your wages. But if you’re proactive, you can resolve the balance before lenders escalate their collection efforts.
What happens if I don’t pay off my payday loan?
Payday loans are convenient, but if you can’t pay off your balance on time, it means a large fee from both the lender and the bank. If it takes too long, the lender may employ aggressive tactics to collect what you owe, and your credit score may be hit. If the lender decides to have the court handle the matter, he may also face a lawsuit.
Fees will be accumulated
Payday lenders may charge a deferred fee if they are unable to pay off their loans on time. Additionally, if you choose to roll over or extend the loan repayment deadline because you are unable to repay, you may face additional financial fees, depending on the state law.
Lenders may also repeatedly attempt to withdraw funds from their bank account on the day the payday loan is due. If the bank refuses to trade due to a lack of funds, the lender may begin to withdraw small amounts. We may also charge a return fee if your account does not have the money to cover the loan.
Even if lenders use this method to collect some of their outstanding balances, they can face overdraft fees from the bank, which cost hundreds of dollars in a short period of time.
Debt collection attempts begin
Lenders can expect to launch debt collection efforts, including repeated calls and letters requesting payments. The lender can also sell your debt to a collection agency or hire an attorney to collect unpaid debt.
You may be able to stop collecting actions by requesting an extension from the lender. Select states have laws requiring payday lenders to grant extended payment plans if requested. Please note that these extensions often have additional fees and interest. So, instead of involving a loan, it may be better to find another way to pay off your debt.
Your credit score may drop
Once handed over to the collection agency, the delinquent account was able to draw your credit score. It can also remain on the report for up to seven years, making it difficult to secure future competitive financing offers.
If this occurs, you can start rebuilding your credit score. Most importantly, you should monitor your credit report, practice responsible debt management habits, and give your credit score the best chance to strengthen over time.
Your lender may sue you
If your lender takes you to court, you will be charged with proof to prove that you are in debt. Request the contract you signed when you retrieved the loan. If the debt collector cannot provide this information, the judge will likely dismiss the case.
That being said, if the lender proves you are owed the money and secures a judgment from the court, you can order payment or decorate your wages. Severity depends on where you live and the scope of other factors, so if you are facing a potential litigation, contact a legal expert for guidance.
If a lender or debt collector threatens or harassssssssss you, contact the state attorney general’s office to file a complaint immediately.
How to get money to pay off your payday loan
Instead of ignoring your late payday loan and possibly ruining your credit, consider how you will pay off your debts.
- Defective Credit Loan: There are various forms of these, but if you can’t pay a payday loan, a bad credit loan can be useful. These include lower interest rates, increased protection and avoid fees associated with payday loan defaults.
- Peer-to-peer loan: Peer-to-peer loans match potential borrowers and investors. You can compare multiple lenders and loan offers with one application, but funds can take some time to hit your bank account.
- Debt settlement loan: Debt consolidation loans allow you to involve multiple high-profit debts in a single loan at potentially low interest rates. Even if your optimal credit score is low, your interest rate can be lower than what you received on a payday loan.
- Short-term emergency loans: Credit unions and select community banks generally offer short-term emergency loans as a payday loan alternative. They are usually small loans that are just under $1,000, with slightly lower interest rates. In some cases, credit checks may not be required for approval.
- Help from a loved one: Also, try talking to friends and family, temporarily cancel your streaming subscription, or switching to a lower food budget, and find ways to adjust your finances to cover your expenses.
What should I do if I can’t pay back my payday loan?
If you are unable to pay off your payday loan on the due date, you can take proactive measures to help prevent the amount of fees and other expenses accumulated.
Request a payment plan
Lenders may be open to negotiating with you because lenders cost money. You can ask your payday loan company to extend your repayment plan. Some lenders offer this service free of charge, while others charge a fee. Please note that extensions can cost more money.
Pursuing debt settlement
Another strategy is to ask whether the lender accepts debt settlements. This is a one-time payment that is less than what you owe. A good starting point is to ask you to pay 15% of your debt. After that, if the lender rejects that request, and refuses up to 50%, they ask to resolve more amounts.
Before you settle your debt, remember that if it’s over $600, you may need to pay taxes on the amount allowed. Also, resolving your payday loan debt can harm your credit.
Register in your debt management plan
Debt Management Plans (DMPs) are available through both for-profit and non-profit agencies. Once you sign up for the DMP, your credit counselor will contact your payday lender on your behalf to negotiate an amended repayment plan that will work for your budget.
If both you and your lender agree to a settlement, you will pay what was negotiated. However, credit scores typically have multiple fees and results. It can also encourage other creditors to close their accounts, causing further credit losses.
Roll over the loan
In some cases, you may be able to roll over the loan. This means that you can extend the repayment deadline by paying the fee. However, this should be a last resort. Beyond your payday loan, it can quickly lead to spiral debt.
When you roll over the loan, the original principal and the interest on the principal will continue to be paid. Additionally, another fiscal fee could be added to the obligation. This option is not available in all states.
How to rebuild your credit after defaulting your payday loan
If your credit score is a huge hit with the default payday loan, you can get back on track. There are several strategies that can help you begin a recovery in your credit health.
- Make timely payments: Many payday lenders will not report to the credit department unless they are defaulted. Therefore, it is important to pay your debt on time and keep your past amounts up to date to avoid ongoing negative credit reporting.
- Lower credit usage: Credit usage rate refers to the percentage of credit currently used in a spinning account, such as credit cards and credit lines. You need 30% or less to get the best chance with a solid credit score.
- Keep your old account open: Your credit age is also considered in the credit scoring equation. If your old accounts are in good condition, leave them open to avoid a drop in the average credit account.
- Limit your credit application: Each time you submit an official application, you will receive a strict inquiry. Your score can only drop a few points, but too many inquiries in a short window can have a big impact on your credits.
- Monitor your score: Monitor your credit health by regularly monitoring your credit scores and reports. If you notice an error, please file an immediate dispute with the Credit Bureau to remove inaccurate information that may drag your credit score.
Conclusion
Payday loans are a costly way to borrow money, especially if you can’t pay it off on time. In addition to the accrual of more charges and interest, payday lenders report non-payment to the Credit Bureau, which could negatively affect your credit score.
If you are unable to meet your debt obligations with a payday loan, be proactive and request a payment plan or debt settlement. Also, consider other, costly options when possible, such as getting an emergency loan or registering with a debt management plan before choosing a payday loan for your financial needs.
