A payday loan is a short-term loan, typically for a small amount of money, that is typically due on your next payday. They are also sometimes referred to as cash advances or check loans. Payday loans are often offered by storefront lenders, but they can also be found online.
How a Payday Loan Works
When you apply for a payday loan, the lender will typically require you to provide proof of your income, such as a pay stub, and your checking account information. The lender will then issue you a loan for the amount that you are requesting, and will typically require you to write them a post-dated check for the amount of the loan plus any applicable fees. The lender will then deposit the check on the due date, usually your next payday.
How Payday Loans Differ from Other Types of Loans
Payday loans are different from other types of loans, such as personal loans and auto loans, in that they are typically not secured by collateral. This means that the lender does not have a claim to your property if you are unable to repay the loan. Additionally, payday loans typically have higher interest rates and shorter repayment terms than other types of loans.
High Interest Rates
Payday loans typically come with very high interest rates. The interest rate on a payday loan is usually much higher than the interest rate on other types of loans. This means that you will end up paying much more in interest over the life of the loan.
Short Repayment Terms
Payday loans typically have very short repayment terms. This means that you will have a short amount of time to repay the loan, usually on your next payday. This can make it difficult to repay the loan in time and can also lead to late fees and additional interest charges.
Potential for Overdraft Fees
When you take out a payday loan, the lender will typically deposit the check on your next payday. If you do not have enough money in your checking account to cover the check, you may be charged overdraft fees.
Potential for Legal Action
If you are unable to repay a payday loan, the lender may take legal action against you. This can include filing a lawsuit against you and possibly garnishing your wages.
Loan Renewal
If you are unable to repay a payday loan, the lender may offer you the option of renewing the loan. This means that the lender will extend the due date of the loan and may also charge additional fees. However, this can be an expensive option and can quickly lead to a cycle of debt if you are unable to repay the loan.
Collection Calls and Letters
If you are unable to repay a payday loan, the lender may begin to pursue you for repayment. This may include making collection calls and sending collection letters. This can be a stressful experience and can have a negative impact on your credit score.
Damaged Credit Score
If you are unable to repay a payday loan, the lender may report the loan to the credit bureaus. This can lead to a lower credit score and can affect your ability to obtain other types of credit in the future.
Garnishment of Wages
If you are unable to repay a payday loan, the lender may be able to take legal action against you and garnish your wages. This means that the lender will take a portion of your paycheck each month until the loan is repaid.
Lawsuits
If you are unable to repay a payday loan, the lender may take legal action against you and file a lawsuit. This can lead to a judgment against you and additional fees.
Negotiate with the Lender
If you are unable to repay a payday loan, you may be able to negotiate with the lender. This may include restructuring the loan or extending the due date. However, this may not always be an option and the lender may still choose to take legal action against you.
Debt Consolidation
Debt consolidation is another option for dealing with unpaid payday loans. This involves taking out a new loan to pay off the payday loan and other debts. This can help you consolidate your debts into one monthly payment and can help you get out of debt faster.
File for Bankruptcy
If you are unable to repay a payday loan, you may be able to file for bankruptcy. This can help you discharge your debts and can provide some relief from the collection calls and letters. However, filing for bankruptcy can have a negative impact on your credit score.
Seek Legal Assistance
If you are unable to repay a payday loan, you may want to seek legal assistance. An attorney can help you understand your rights and can provide advice on how to best deal with the situation.
Create a Budget
Creating a budget is an important step in avoiding payday loans. A budget can help you manage your finances, track your spending, and make sure that you are living within your means.
Build an Emergency Fund
Having an emergency fund can help you avoid taking out payday loans. An emergency fund is money set aside for unexpected expenses, and it can help you avoid taking out a loan when unexpected expenses arise.
Use Credit Counseling Services
Credit counseling services can help you manage your finances and can provide advice on how to avoid taking out payday loans in the future.
Explore Alternative Sources of Credit
There are many other sources of credit available, such as personal loans, credit cards, and home equity loans. Exploring these alternative sources of credit can help you avoid taking out payday loans in the future.
Non-Profit Credit Counseling Agencies
Non-profit credit counseling agencies can provide advice on how to manage your finances and can help you explore options for dealing with payday loan debt.
Debt Management Programs
Debt management programs can help you manage your debts and can provide advice on how to avoid taking out payday loans in the future.
Debt Settlement Services
Debt settlement services can help you negotiate with your creditors to reduce the amount of debt that you owe.
Payday loans can be a convenient way to access cash in a pinch, but they come with a number of risks. If you are unable to repay a payday loan, the consequences can be serious, including collection calls, damaged credit scores, and even lawsuits. However, there are options available to help with payday loan debt. These include negotiating with the lender, debt consolidation, filing for bankruptcy, and seeking legal assistance. Additionally, you can avoid taking out payday loans in the future by creating a budget, building an emergency fund, using credit counseling services, and exploring alternative sources of credit.
References:
• https://www.nerdwallet.com/blog/loans/what-is-a-payday-loan/
• https://www.thebalance.com/payday-loans-315577
• https://www.creditkarma.com/advice/i/consequences-not-paying-payday-loan/
• https://www.magnifymoney.com/blog/payday-loan-alternatives/what-happens-if-you-dont-pay-back-a-payday-loan/
• https://www.credit.org/payday-loans/
Questions and Answers
How many people don’t pay back payday loans?
Only 14% of payday loan borrowers can pay back their loans. States without regulations can have payday loan rates range from 391 to 521%. A slight majority of Americans, 55%, live in the 28 states where payday loan laws are permissive and less regulated. 58% of payday loan borrowers struggle to meet monthly expenses.
What percentage of people default on payday loans?
The average payday loan default rate is about 6%, the same as the typical credit card default rate. While many payday loan users cannot repay their loans on time, there are various means for lenders to recover the money.
What percent of payday loans go to repeat borrowers?
91%
What will happen if i don’t pay back a payday loan?
At some point, the payday lender might send your debt to collections. In the end, you may owe the amount you borrowed, plus the fee, overdraft charges, bounced check fee, possible collections fees, and possible court costs if the payday lender or collection agency sues you.
Comments are closed.