Payday loans are small-dollar loans, usually between a few hundred dollars and $1000. The cash advance is made for a couple of weeks till the next payday. Since the amount and the term is less, a high majority of people have no problems in repaying the loan amount and also the fees involved and interest. But there will always be a few people who face problems in their repayments, just like any other type of loan.
There will obviously be consequences of not paying back any loan, not just a payday loan. After all, when you are taking credit, you are making a commitment of paying it back. It is important for the lender’s business that you pay it back. It is also important for the other debtors because if the lending business doesn’t have the funds, how will it offer cash to people who need a loan?
But what can be the consequences of not paying back a payday loan? Let us investigate.
1. First, admit the credit consequences:
Your credit score is likely to take a hit when you default on the loan, and don’t work out an alternative payment plan with your lender. If you default, the lending agency may sell this debt to a collection agency legally, though this may not happen always. The default may also be reported to the three most important credit bureaus.
• Plus, if the default is sold to a debt collection agency, the agency may use aggressive collection methods to realize the payment. You may receive calls both at home and at work. Your family and even friends may receive calls for payment.
• When your credit score goes down for the default, it may become very difficult for you to get another loan and credit card approvals, even when you finally manage to pay it back. That is because the credit bureaus will often keep the collection agencies report on your report for up to seven years.
2. You may be sued in a civil court:
When you default on the payday loan, the lending business may even sue you so that the overdue amount can be collected. Your property may be seized if the lending business gets a court judgment for the overdue loan amount. A law enforcement officer will help the lender to seize your property. It will then be sold off to realize the balance amount. Unlike a secured loan with a specific property, the judgment for a payday loan may involve any property you may have at the time when the judgment is passed. It may even involve any property you acquire later.
• In many states, the judgment is for 10 years. Thus, when the payday lender gets a judgment against you, any property you acquire within these 10 years can be seized by this judgment, if you have still not paid back the loan.
• Even though the payday lending agency may sue you in a civil court, but your failure to pay back the money is still not deemed as a crime. There are some collectors who threaten defaulters with criminal action, but you should know that you cannot be sent to jail, unless of course the court determines that you took the loan and never planned to pay it back intentionally. Contact a lawyer immediately if anyone threatens to arrest you for failing to pay back a payday loan.
3. There will be extra fees and interest:
You are likely to owe the lender even more money when you default. It goes up the longer you don’t pay back the loan. For continued repayment for a long time, even a loan amount as less as $250 can go up to $1,000 after a while.
• In some states, there are rules on how much interest payday lending companies may charge from you. However, there are no such rules in other states. So the lending company is free to charge any fees and interests for nonpayment.
How to Handle the Unpaid Payday Loan
1. Know how payday lending works:
Payday lenders typically issue loans and a fee for it. If a borrower is not able to pay back the loan amount and the fees associated with it when it is due, many lenders will then add up a second fee to “renew” the cash advance made to the borrower and offer more time to make the repayment. The cash advance is for the short-term, so a borrower can go further into debt when he or she cannot pay back the increasing loan amount.
• For instance, if you borrow $100, the fee is likely to be $25. So you have to pay back $125 within the next couple of weeks after borrowing. If you cannot pay this back within the stipulated time, the lender will have the option of renewing the loan for a couple of more weeks. A $25 fee will be added. The total amount thus goes up to $150. If you don’t repay for a full year, a $100 loan amount may become $600 in fees.
• Your credit score is likely to get damaged if you don’t pay back the loan. It may become difficult for you to get a loan in the future when this happens. You may even have to deal with a collection agency.
2. Go for an “Extended Payment Plan” or EPP:
Act even before your repayment is due, if it seems that you may face problems in making the repayment. Don’t leave it for the last moment. There is a provision for you to apply for more time to make the repayment without the extra fees. This is the “Extended Payment Plan” or the EPP. You have to meet the following conditions to qualify,
• The lending company has to be a member of the CFSA or the Consumer Financial Services Association of America.
• You have to make the application for the EPP at the place where you received the loan, and this should be a day before the repayment is due. No less.
• You will be required to sign an “amendment” for the loan to show the EPP.
• You must also enroll for the EPP once in a year.
• The CFSA website can tell you whether your payday lending company is a member of the Consumer Financial Services Association of America.
3. Pay back the loan as soon as you can:
Make the financial adjustments necessary to pay back the loan as soon as possible. Make it the top priority. In fact, if the lender allows, then you should pay it back even before the due date.
• You may also consider borrowing the money from a family member or friend to pay back the payday loan.
• If you have 600+ credit score, you have the option of taking out another loan, like a personal loan, for instance, to pay off the payday loan. Payday loans are great in an emergency because you can get the money more quickly, almost immediately. Bank loans take much longer. But once you have the payday loan, you are no more in an emergency. You have the time to make an alternative arrangement.
4. Get the help of a credit counselor:
Seek the help of a non-profit credit counseling agency if there is no other way for you to pay off the debt. The agency will help find your various options. The counselor may even negotiate with the lender and make suggestions based on your financial condition.
In case, you approach a credit counselor:
• The counselor can secure a longer payment term for you. The person may even suggest that you file for bankruptcy.
But you may negotiate yourself too. It is often the better method because the lender knows you. Most payday lenders will be willing to help you in every possible way because they want the money returned. It doesn’t help anyone if you cannot repay and end up filing for bankruptcy.
5. Negotiating with your payday lender directly:
Often, payday lenders are keen to directly negotiate with you. When you are doing this, always make sure of the following –
• Negotiate to arrive at new terms for the loan – ensure that it is in writing.
• Record all the conversations you have with the lender, including those over the telephone or in person. Maintain records of all letters or emails you receive from the lending business.
6. File your complaint with the CFPB or the Consumer Financial Protection Bureau:
If you have reason to believe that the payday lending agency is acting illegally or if you are having problems with the lender, then you may file a complaint at the CFPB website or can also call (855) 411-2372. Your complaint can be submitted for these reasons –
• If the lending business has charged interest or fees you did not know about.
• If the lending agency has taken cash from your bank account without your permission, or has taken more money than you authorized.
• If you have already paid off a part or the complete loan, but the lending company claims that you still owe money.
• If you cannot make contact with your lender.
• If you have asked the lender not to contact you at your place of work, but the lender still makes contact.
• If the lending business contacts your coworkers, family or friends for the repayment.
7. File the complaint through a state agency:
In many US states, you may file a complaint against your payday lender. Visit this website, and then click on your state’s link to know whether you can do so in your state.
Q). Can the collection agency take you to court for not paying back the payday loan?
A). Yes, they can. It is also likely that the lender will win. However, you may avoid liability by recording any excessive contact and then presenting it to the court.
Q). Will the lender call my workplace if the loan is unpaid?
A). The lending business may contact your employer if your work phone number is listed. But if you didn’t list the number, and still the lender finds your place of employment and makes contact there, then this can be a case of harassment under some jurisdictions.
Q). Can the lending company refuse a new loan?
A). Yes, particularly if your old loan is still unpaid.
Q). Can the lender come after me even if the loan is more than 10 years old, and I have filed for Chapter 7 bankruptcy in the meantime?
A). No. Just inform the lender that you have already filed for bankruptcy. But you will need to show proof of this.
But once more, in a high majority of cases, a payday loan goes smoothly. Most people are able to pay back the loan on time without a problem. These are small-dollar loans for the short-term. It is thus not a problem. The cash is of great help in an emergency.
We hope this article helped you to know consequences of not paying off a Payday Loan and where to get help.
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