What Happens if You Don’t Pay Back a Payday Loan?
Are you trapped in an urgent cash requirement and looking for sources? Your credit score is also not that good, and the credit card does not have enough limit. You are thinking about borrowing money from family members or friends, but later your ego or embarrassment comes in. In such situations, payday loans come for your rescue.
What Is Payday Loan
Payday loans are quick and easy loans for a short time. Mostly with no credit check and no Teletrack. You require minimum documents such as your government id proof, address proof, photos, email id, mobile number, your bank account details, and regular income source to get a payday loan.
You can get the loan amount in your bank within a or two days. So, these direct lenders are best when you need a quick and easy loan. Yes, the interest rate is always on the higher side, and the amount is not that big.
When People Require a Payday Loan
There might be any reason for a quick and small requirement; you can look for payday loans. In most cases, the total amount of payday loan is either less or equal to your next month’s salary, so one can expect it to be between 300 to 1000 dollars in most cases.
You may be looking for urgent cash to pay credit card dues, utility bills, monthly rent, college fees, a unique course to enroll, a high configuration laptop. Or anything that solved with a small amount spanning within your regular monthly income.
While disbursing your payday loan, the lender asks you to write a check to him the total loan amount, payable on your next payday, or 31 days from the date of a loan agreement, whichever comes early. The check is the only guarantee that a direct lender has, and believe in you, they give you the money required.
Why People Become Defaulter
You applied for a payday loan, and it gets processed. You get the required money in your bank a/c within two days, and your requirement is fulfilled. Now, it’s time to repay a payday loan. There are many reasons due to which people defer repaying payday loans. So, what happens if you do not pay back a payday loan.
Some of the common reasons are – how can I manage my next month’s expenses if I pay full salary as repayment of a payday loan, I have another urgent requirement that needs money instantly, and so on. There might be any reason, but not repaying the loan is not a good idea.
What to Expect When You Don’t Repay a Payday Loan
You have taken a payday loan from the direct lender and now plan to stop repaying it. The first and foremost thing is that it is not ethical not to pay back a lender who trusted you at your crisis time and gave you money with no credit scores check and no Teletrack. However, there might be many reasons for this.
Additional Fees and Interest
When your check is not get cleared on a given date, the lender treats it as a delay in payment, and the first thing he will do is to add the late fee, check bounce charges, and other costs to your account. He can also add additional interest for your payday loan for the extra time that you take to repay it.
These charges are entirely dependent on the agreement you had signed during the processing of that payday loan. There are long term and condition pages that you had signed without reading. It’s time to know what is there that can hurt you.
In most of the payday loan agreements, the lender takes permission from you to initiate an automatic withdrawal from your bank, if required. The lender will use this clause as a weapon to deal with such a situation. They immediately process an automatic withdrawal from your account. So, if you keep the money in your account, thinking that the repayment date is over, then it can be easily wiped out as repayment of your loan.
If the first attempt failed, they could do it again with a smaller fund, thinking that they will get whatever is there in your account. So, you need to keep your account dry if you wish not to pay them back. However, there is no advantage associated with such an act. There will be a bank fee added to your account for each failed attempt to withdraw money.
Debt Collection Calls
You failed to repay on time. Now, it’s time for the lender to know the reason for your non-repayment. You will get a series of phone calls from the debt collectors and third-party agencies regarding the non-repayment. The debt collectors will first find out your intention, and depending upon that, one will get increasing or fewer calls for repayment.
If you are fair with your communication with the debt collectors, then there is a higher chance that you get fewer calls, and the lender will wait for your repayment, of course, with additional charges to your account. Otherwise, be ready to get annoying calls from the debt collectors all the time throughout 24 hours till you make the payment.
You can expect a series of letters from lawyers. If you are not picking the phone or not reachable, the debt collectors may call your family members or friends to locate you. You have given references when applying for the loan, and this information will be handy when they require to find you.
Damaged Credit Score
If you repay your payday loan on time, then nothing will happen to your credit score negatively. If the lender informs the credit agency about your timely repayment, you can expect a positive impact on your credit score.
However, if you delay in repayment and the matters go into debt collection agencies’ hands. They will inform credit agencies regarding your delay in payment or becoming a defaulter, which will impact your credit scores for sure.
Is It a Criminal Offence?
Delay in repayment or becoming a defaulter is not a criminal offense until you do it intentionally. Doing it means you have money, but you don’t wish to repay, which is doing fraud in other terms. If you are in financial problems and unable to refund any loan, then it comes under civil offense, and there is no arrest in such cases.
When that happens, be ready to get threatening calls from the debt collection agencies. As per the state laws, threats from the lender to the borrower is illegal, but it is common in such cases.
A Chance to Negotiate
Your present financial condition is not permitting you to repay the loan, and you are not in the position to extend that loan or take any new loan to repay it shortly. If it is the case, then let the lender know the correct fact.
Most lender agencies sell non-repayment borrower rights to independent collection agencies for a minimal amount. It can be a tiny percent of your total loan. That means a lender gets very little from your outstanding, so why not talk to the lender directly and come to a solution.
Most lenders disagree with it until you say that you are planning to consider bankruptcy. The lender knows that they will never get a single penny if you do so. Mostly, they settle for mutual benefits. You never forgot to agree with this statement that you are clear with the debt, and your balance is zero to the lender now.
Difficulty Securing Future Financing
Once you become the defaulter of any loan debt, it isn’t easy to get future financial aid from any agency. Be it banks, other financial institutes, or direct lenders; they will be afraid to give you money when you need it again, knowing that you may not pay back the debt.
Your credit score gets impacted due to the non-repayment of this loan, and you are ineligible for future loans from any organization. Banking institutions will not give you any credit card and other facilities.
The Court Summons
To get the payment from you, the payday lender has the right to go to the court and send you a summons. They may charge a civil case against you, and there is no arrest in such cases. However, they might file a criminal lawsuit in particular conditions. Never run away from court summons. Otherwise, it will be a severe offense and will treat you as a criminal.
What to Do Next When You Plan to Defer the Check?
You have taken a payday loan and are unable to repay on time. Now wondering what the available options that can stop you from becoming a defaulted are. If such situations happen, here are a few solutions.
Block the Check
The first and foremost thing to do is to block the check. For this, you need to contact your bank and ask them to dishonor the payday loan lender check. It may add some bank charges to the debt, but you are safe that the lender will not get money.
However, if you have permitted automatic bank withdrawal, then blocking the check is not sufficient. You need to withdraw the total funds from your bank a/c and make it zero so that the lender will get success through automatic bank withdrawal.
Inform the Lender About Your Situation
Blocking the check by informing the bank or stopping the automatic bank withdrawal by withdrawing the funds in your bank a/c earlier can save you for a day or two. These are temporary solutions, and you need to inform the payday loan lender about your current situation.
Check the Associated Law Regarding Payday Loans
In some states, payday loans are illegal, so check your state’s laws before doing anything. If it is unlawful, then the lender will not be able to do it legally. He can only make you regular calls for repayment. In some cases, it happens that the lender may threaten you, and here you have a chance to go to a court against the debt lender.
Don’t worry; the verdict will come in your favor as the payday loans are illegal as per your state law. Always take the lawyer’s advice before doing anything written above.
What Are the Ways to Overcome This Situation
Wondering what happens when you are trapped in financial crises and unable to find the way out to repay a debt. Worry not, here are steps by following which you can come out of it.
Evaluate Your Overall Debt
Don’t consider the payday alone. Try to note down all the loans and bills pending and try to find out the overall debt. It will give you a better picture of your current situation and let you plan better to come over it. It is not at all as easy as it said. But, with positive will power, you can come out of it one day.
Try to note down all the debts that are charging you a high rate of interest because these are loans that are draining out your account fast, and you are unable to overcome your financial situation. Try to close these debts first.
Extend Your Repayment Tenure
Talk to the lender and try to extend the tenure for your existing payday loan. Yes, payday loans mean to be a short term loan for a month, but in some cases, it can be extended for some more time so the borrower can pay it back.
Additional interest and charges may be attached to this case, but you will get time to repay a payday lender and time to plan your other debt repayments better. However, bear in mind that the loan lender has rights reserved to decide how much extra time he can give.
Search for New Loan
Searing for a new loan with lower interest rates and longer tenure will help you come out of your present situation. If you get a new loan with a lower interest rate and longer tenure, it is advisable to take that loan and clear your current debts. It will help you with the smaller monthly installments hence better monthly planning.
Take Help From Credit Union
Credit unions offer installment loans with longer tenure and lower interest rates than payday loans. You can look for them to repay your payday loans and any other urgent cash requirements.
Get Help From Near and Dears
You can always ask your family members and friends when you are in a debt situation. If you get help from them, then nothing is better than that. In most cases, you will get the money that is interest-free to repay a payday lender.
Frequently Asked Questions
Do I Have to Pay Back an Illegal Payday Loan?
The answer to the above question is no. However, it would help if you planned better to deal with the lender who dares to offer payday loans illegal in your state. These payday lenders are doing unlawful activities, so they are not a real businessman, and you need to take proper advice from a lawyer to deal with such people. Always follow the instructions given by your lawyer.
Can You Go to Jail for Not Paying Back a Payday Loan in Texas?
If you cannot repay a personal loan in Texas, U.S., then it comes under civil offense, and you will not go to jail for this offense. As per U.S. law, borrowers cannot get jail for failing to repay a loan. Some lenders try to file a criminal case based on the agreement you signed while taking the loan.
How Long Does a Payday Loan Stay in the System?
Payday loans are a short term personal loan with higher interest rates. The tenure of such loans is very small, and it can last from one week to a month depending upon the repayment payment date. Usually, the repayment time is your next payday. If you pay on time, it gets recorded in your credit report.
Generally, the credit report shows the payday loans for six years, so if you have taken a loan and cleared it on time, it will be visible for future lenders for the next six years. The credit report helps the lender know about your repayment ability and build trust for future lending.