What happens if I default on a payday loan?
If you need fast cash to get you next paycheck, a payday loans is the best option. This could be a great option if you don’t have credit or can’t get approved for any other types of loans. Payday loans are possible, but they can be costly.
Payday loan repayments can be very difficult as they are often expensive. If you are unable repay your payday loan, it may be difficult to get them back but you can head to paydaynow.
What happens if your payday loan is not paid on time?
A payday loan default can result in severe consequences.
- Additional fees, interest and charges: There might be additional fees depending the location you live in or the lender you choose to repay your payday loan. These fees are known by nonsufficient funding fees (NSF Fees) and are charged to you if you don’t have the funds for a particular transaction.
- Collecting debt: The 60-day period in which your lender attempts to collect payment will be approximately 60 days. They will try to get payment from you within 60-days. If they don’t receive the payment within 60 days, they will contact an agency third-party to collect debt. The debt collection agency may call you every day and send letters to get the money. Their collection efforts will be more aggressive then your lender’s.
- Credit score damaged: Paying off your payday loan promptly will not impact your credit score. If your loan is not paid by the due date and the collection agency places your account, your credit rating will be affected.
- Court summons: Even if you’ve only defaulted on small amounts, there’s still the possibility of a collection agency taking you to court. You may be subject to wage garnishment or liens against your property depending on where and when you live.
- Future financing is difficult to secure: A payday loans default can stay on credit reports for as long as seven years. This could make you less likely to be approved for any other loans.
- Arrest threats: It is illegal for banks and lenders to threaten people with jail or arrest. This type threat should not come from a lender or bank without consulting your state attorney.
How to rebuild credit following a default on a payday loan
Payday loans can be stressful and cause anxiety. There are many options to improve your credit score and reduce the severity of the situation. These are some useful tips.
- Keep up to date with payments: If you can’t pay your debts in full, you may be able cut down on your expenses or find a side or part-time job. You may need professional help for debt counseling, debt management plans (DMP), and debt consolidation.
- Pay your bills on-time: Even one late payment can cause credit damage. It is crucial to pay all bills on time. If you worry about forgetting, you can set reminders in your calendar or opt for automatic payments. You can ensure that your credit card, mortgage, or car loan payments are paid on-time.
- Consider your credit utilization ratio: Credit utilization ratio: This shows how much credit you use relative to the amount of credit available. Credit utilization should not exceed 30 percent. The lower the number, better. This goal can be achieved by keeping your spending and balances low.
- Check your credit reports regularly: Ensure that you regularly monitor your credit reports. You can visit AnnualCreditReport.com and get an annual free copy of your Experian, Equifax and TransUnion reports. Register to receive your Experian credit reports free of charge every 30 days. Pay attention to any negative marks that may be affecting you score.
Even if you default on a payday loan, it is possible to move forward
If you default on a payday advances, you’ll need to put in a lot of effort to rebuild your credit. There is a silver-lining. You can become a responsible borrower, and you will avoid financial disasters in the future.